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Commercial Property - Dive or Fly?

Posted on 25 January 2021 by Fred Nucara

After the tumultuous journey of 2020, the burning question is “what is the commercial property market going to do?”. It’s a typical question at the commencement of every year and is loaded with many hypothetical scenarios – even some involving a dart board!  Nevertheless, it is important to have a view based on our past experience and intuition.

In recent discussions with many industry stakeholders, Client Landlords, Tenants, Buyers, Banks and Professional Consultants, there is a common thread of “being adaptable and reasonable”.

There is one certainty in that landlord-tenant relationships will be strained more than ever, and the Property Manager will be forced to endure an additional level of professional service to navigate through these issues. The CRS does provide a framework for negotiations; however, it will not last forever and not everyone chooses to play by the rules. 

The underlying reality is that there will be generally downward pressure on rents in the retail and office sectors and to a lesser extent industrial and essential service businesses. We are already experiencing tenants advising us up to 6 months in advance that they will not be exercising their lease options. Our standard vacancy rate of predominantly retail/office space is around 46 tenancies, however, this is now at 83 tenancies as at the end of 2020.  Therefore, based on our sample, logic would suggest greater supply across the market and therefore longer vacancy periods and a flattening of rents for the next 12 months in the office and retail space.

Surprisingly, given the low interest rates on commercial loans and a plethora of superfund investors, there is a very active pool of buyers surging into the market. Yes, they may be a little cautious, however history has proven that “bricks and mortar” investment performs better over time when combined with return and capital growth. Expect buyer demand to continue to be solid.
Marketing, negotiation experience and “thinking different” will be crucial.Investing less in marketing is a huge risk in this environment – how do you stand out from the pack? Our Team have continually considered various mediums to improve generating not only a higher level of enquiry but also better quality of enquiry. Our mantra of elite marketing for your property will become more decisive in capturing the right pool of tenants and buyer calls so that we can secure that right business for the vacancy or find that buyer that will be pay the premium price. 

As we commence our 2021 journey, it is important to remind ourselves about our core values around commercial property investment and that our Team aim to be your Trusted Adviser. We are not sitting on the fence, but I bet there will be those that will unfortunately “dive” and those that will “fly”.  Now let’s get that dart board…

 

Fred Nucara.
Director and Officer in Effective Control

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