Perusing 2021 forecasts by Australia’s major commercial property firms indicates the asset classes will move forward, albeit at considerably different speeds. Here are some of the most salient insights from leading commercial real estate firms on the year ahead.
Chatter around the future of CBD office towers and the ‘flight to the suburbs’ has risen to new heights since Work From Home became our norm. Confidence however remains positive. Analysts across the board list the sector’s attractiveness to overseas institutional investors as a primary reason, the appeal driven by low interest rates and general stability. “Australia looks relatively attractive compared to other global markets facing more difficulty managing COVID-19 and has better prospects of a speedy return to growth,” Knight Frank’s 2021 Outlook Report states.
Also buoying the market is the simple fact most of us miss office life. Flexibility in how, where and when we work is here to stay after last year, but a substantial 85 per cent of office workers do not want to give up their office desks permanently according to Colliers International’s 2021 report. “This will be key to underpin long term occupancy in the office markets,” Colliers Head of Office Capital Markets Adam Woodward said. “Moving forward, we expect that the office asset class will continue to attract strong demand, with the fundamentals of the Australian market providing extremely attractive opportunities to offshore groups within the region.”
Employee concerns about returning to the office are still significant enough for around half of the Deloitte Insight’s 2021 CRE survey to feel it will hamper business success in the near term. The solution? Planning and implementing a talent transformation to adapt to the future of work, and prioritizing diversity and inclusion will provide a competitive edge,” Deloitte analysts say.
This sector also has a more upbeat outlook despite the effects of lockdowns and an unprecedented spike in online shopping. A chief indicator is the $70 billion that flowed into the economy between March and September courtesy of consumers armed with stimulus packages and early superannuation withdrawals. Colliers’ 2021 Outlook report observes that this multi-billion dollar outlay bodes well for the sector and gives it the capacity to “improve substantially”.
E-commerce and logistics saw industrial at the top of investor’s lists in 2020 where it is tipped to remain. Currently, the sector is looking to benefit from an estimated $26 billion in capital investment said “Gavin Bishop, Head of Industrial Capital Markets at Colliers International. Given that only $3.57 billion traded in 2020, this figure highlighted the “significant mismatch between supply and demand and the significant volume of unsatisfied capital looking to be placed, he added. “As a result of this, we expect that additional assets will be brought to market in 2021 as groups look to capitalise on the continued strength of the industrial and logistics market.
Knight Frank sees the questions over the strength of occupier demand in office and retail sectors as a driver for demand in industrial and logistics property this year. Investors will “seek to increase their portfolio weightings to the sector” its 2021 outlook states. The desire for the best income returns as well as diversification will fuel the expansion of specialist asset classes such as healthcare, cold storage, data centres and build-to-rent.
Jones Lang LaSalle’s 2021 vision report observes the logistics industry and warehousing will in future be forced to follow the lead of the office sector and spruce up premises in order to attract and keep workers. “As online sales continue to grow, demand for warehouse workers and fulfillment professionals will increase further. Amenities within warehouse spaces can help in attracting more workers while also providing a safer, healthier and more enjoyable environment for employees.”
Considering the $110 billion spent on travel in 2019 was redirected to retail and household savings last year - not to mention continuing issues around going simply anywhere at all - it comes as no surprise this asset class remains challenged. Last year abruptly halted a bull run of transactions in the Australian hotel investment market with a decline to $406 million over the first nine months of 2020, relative to the long-term average of $1.6 billion, according to research from Colliers International.
A silver lining however can be found in Savills’ Asia Pacific Hotels Sales and Investment January 2021 report. Savills lists Australia in the region’s top three performing markets, coming after India and before South Korea. The performance of the sector across these three countries contributed to it showing “faint signs of a recovery during Q4 2020” contrary to industry beliefs.
Some of the most notable transactions in the latter part of 2020 were the sale of Aurora Melbourne Central by Malaysia’s UEM Sunrise to London-based Scape Student Living for $127 million and the off-loading of Novotel Brisbane by CDL Hospitality REIT to Amora Hotels and Resorts for $68 million. “Being prudent in selecting investment opportunities on top of a meticulous underwriting process will be essential for investors looking to take advantage of the current situation,” Savills advised.