WORKING FROM HOME WILL KILL THE OFFICE MARKET
This looks to be busted ! While occupancy levels in many major CBD markets were sub 20 per cent for parts of 2020 and 2021 , this has been more of a pause than overall changing trend . While not all businesses have been able to weather the COVID-19 storm and have needed to hand back office space or reduce their requirements , we expect this to be a short-term blip on the office radar , which will see vacancy rates increase and impact income levels . However this will be a short to medium term shift in fundamentals for the office market and hasn ’ t dampened investment demand , which highlights the longer term confidence in office assets .
There ’ s no doubt that COVID-19 changes the way in which we interact with office space , with reduced footprints likely as more employers embrace working from home , while various working models may see more suburban offerings or shared office space an option for some businesses . In 2021 , we saw a strong growth in owner-occupier purchased office space with small businesses looking for an alternative to working from home , yet still being close to home . This resulted in $ 8.55 billion in office sales ( sub $ 50 million ) in 2021 across Australia , up 103 per cent on 2020 volumes , while some investors saw strength in tenanted investments with yields of sub 5.5 per cent achieved in some locations . Across the larger end of town , landmark sales in various CBDs again exceeding $ 1 billion continued to transact with yields as low as four per cent being achieved , as domestic and international funds vie for a piece of premium office stock . These results further highlight the longer term robustness of the office market .
RETAIL IS DEAD
There has been a lot of talk about the future of retail well before the onset of COVID-19 saw retailers have to close their doors . While this has been a difficult time for the retail industry it ’ s safe to say that this myth is also busted , however , location is definitely a factor . We had already witnessed a push towards online retailing , and growing vacancies in our retail strips and centres impacted rents significantly . Some occupiers have changed the way they interact with their customers , providing concept stores and in-store experiences while transacting online . In addition , the growing food segment in mix-retail locations that were striving to become “ foodie destinations ” were impacted by COVID-19 restaurant closures .
All in all , results for the retail market have been mixed with many suburban locations benefitting from the working from home population growing , while CBD locations close their doors . Many food retailers also found it difficult to navigate the changing regulations , and vacancies have been up across many regions . However , savvy owners have looked to reposition their retail assets if traditional retail tenants haven ’ t been available and subsequently we have seen a large increase in medical users taking up retail spaces . Larger footprints have also been ripe for redevelopment into childcare , fitness / activity spaces or other uses . Despite the challenges , we continue to see buyers eager to purchase these assets . In 2021 Australia saw $ 8.65 billion ( sub $ 50 million assets ) change hands , nearly a 100 per cent increase on 2020 results . Smaller holdings have been attractive to investors with yields ranging from four to seven per cent depending on the quality of asset and tenant , making this a lucrative investment proposition . Similarly , convenience retailing and small centres anchored by supermarkets have recorded robust results given the growth in this segment , however larger centres have seen limited transactional activity over the past 18 months .
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