Elite AgentOPINION

What’s in store for Australia’s commercial real estate industry?

As we look to what 2022 holds for Australia’s commercial real estate industry, it’s important to take stock of the lessons learnt in 2021.

While the turbulence and unpredictability of the pandemic carried over into 2021, it was, for the most part, a year of recovery and stability for Australia’s commercial real estate industry.

Looking at key metrics sourced from Re-Leased’s CREDIA data, signs point to a positive step forward for an industry that has been plagued by lockdowns and work-from-home orders, potentially forecasting a return to pre-pandemic figures in 2022.

Rent collection is a key indicator of how the commercial real estate sector is performing, as it demonstrates whether tenants are paying rent on time and, in turn, gives an indication as to whether their income is being impacted.

Unsurprisingly, rent collection continued to fluctuate throughout the past year due to ongoing lockdowns across Australia.

Rent collection across all sectors nationwide sat at 80 per cent in January 2021, the lowest figure for the year.

However, rent collection moved away from harsh 2020 numbers to achieve end-of-year figures just shy of pre-pandemic levels in 2021, instilling stability back into a sector that has been heavily disrupted the past two years.  

Industrial and office rent collection observed a healthy recovery, achieving a peak of 87 per cent multiple times throughout the year.

While both sectors were affected by lockdowns throughout 2021, the stabilisation of rent collection levels enabled a predictable cash flow for industrial and office landlords.

Landlord subsidies are also a major indicator of how the commercial real estate sector is performing, referring to credits provided by landlords to tenants, most likely to alleviate financial hardship caused by the pandemic.

This was a big focus during 2021, with landlords and property managers working with tenants to address the impact of the pandemic on their income and livelihoods.

Landlord subsidies trended downwards in 2021 after reaching record highs in mid-2020, peaking at 3.2 per cent in October 2021 following a period of prolonged lockdown.

These levels have since settled, as tenants found their feet again after a difficult and disruptive period.

The Weighted Average Lease Expiry (WALE) for commercial real estate leases likewise returned to a sense of stability after dropping in the first half of 2021.

Australian retailers’ commercial property leases have shortened on average, falling from 32.7 months in January 2021 to 31.5 months in June 2021.

However, this trend stabilised in the second half of the year, indicating retail property landlords have been afforded an increased sense of certainty of their future cash flow heading into 2022.

Looking further into 2022, we can expect some major trends from last year to carry further into this year.

For the office sector, the rise of remote working has been a hot topic of conversation throughout the past two years, attributed to extensive lockdowns and work-from-home orders implemented across Australia.

The pandemic has awoken a desire within many workers to either fully or partially work from home, which has resulted in the facilitation of hybrid work and greater flexibility from employers.

Landlords will therefore need to demonstrate flexibility with their office leasing strategy in 2022, such as accepting flexible lease terms and being transparent with communication.

Failure to do so may result in longer periods of vacancy, as well as loss of income and business.

However, as we move away from lockdowns, a rise in office occupancy is almost guaranteed, and has already begun to manifest.

Although many employers may choose to remain flexible and allow hybrid work, increased office occupancy is expected to result in more stable rent collection levels for landlords, granting greater security and predictable income.

The previous year saw phenomenal growth for the industrial sector.

Remaining afloat through various lockdowns due to strong e-commerce demand, the industrial sector experienced a year of major developments and projects despite COVID-19-related supply chain disruptions.

Looking ahead, the industrial sector will likely continue this strong growth trajectory, avoiding the devastating impact the pandemic has had on other industries.

The retail industry also saw a strong recovery last year, reflecting consumers’ desire for in-person shopping and a decreased impact of the pandemic.

The retail sector will continue to bounce-back from the harsh effects of the pandemic this year, hopefully returning to pre-pandemic rent collection levels to secure a stable and predictable income for landlords.

Landlord subsidies across the retail sector are expected to continue declining as we continue to adjust to living with COVID-19.

Due to the unpredictability of the pandemic, it’s too soon to say with finality that there will be a complete recovery of Australia’s commercial real estate industry in 2022, but it would not be unwise to hope for a return to pre-pandemic levels.

Last year was an impressive year for recovery and stability despite the lingering impact of the pandemic, and an impressive bounce back from the extreme lows of 2020.

Thus, property managers and landlords should remain optimistic as the industry builds upon the strength of the past year, and hopefully continues this growth trajectory.  

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Tom Wallace

Tom Wallace is the CEO of the cloud-based, commercial property management software company Re-Leased.