How the end of government stimulus measures is expected to impact commercial real estate?

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Before 2020 it was estimated that almost 1 million people travelled into the Melbourne CBD each day. However, since the beginning of the pandemic, these numbers have been declining drastically.

The seismic shift in workplace cultures and attitudes, caused by the pandemic, is prompting many large corporations to move away from their enormous CBD office spaces. Though the federal and state governments have used a range of measures to support commercial real estate and its tenants throughout the pandemic, these measures are about to come to an end.

The federal government’s stimulus packages and new mandatory code for commercial property tenants, led by the Victorian government, were set to assist property owners and local businesses in weathering an unprecedented and challenging year. As March 31st approaches many are becoming more aware that the next 6 months will be crucial for many businesses and sectors across Australia as stimulus packages are officially halted.

So, how is this expected to impact commercial property? It is likely retail shops could go the way of empty city offices, with small businesses facing what is being called ‘a year of reckoning’. This could in turn trigger a wave of distressed selling in the commercial property market, that could send values plunging.

While we haven’t seen any of this yet, it is believed to have been held back due to the stimulus measures, meaning that people haven’t felt the pressure to liquidate their assets.

While the predictions for the commercial market short-term are sobering, those investors who are lucky enough to have kept their long-term leases signed or continuing are likely to come out better on the other side.

At the end of the day the Australian economy is still re-building and we still did suffer a recession. However, many are optimistic that the commercial property sector will pass through this period and come out the other side.

The Australian property market in general is expected to remain viable long term, thanks to our overall low risk due to our strong health care systems. The strong foundation that the sector previously had, has only been shook, rather than destroyed and the damage will eventually heal.

However, for some investors this damage created the perfect storm, and has allowed them to pounce on any commercial investments that will later heal, and in the long-term become a profitable investment.

Just as all business and financial sectors throughout 2020, some thrived, and some didn’t.  Many within the sector are aware of the challenges that were presented to the market because of the pandemic. However, while this year is going to be tough, it won’t be as tough as last year. Even with stimulus packages coming to an end, the strong foundations of the Australian property markets, and the country’s health system, is expected to stay steady and carry us into an eventual stronger future, despite the tough few months ahead.