While the global response to the COVID-19 outbreak evolves daily, one thing is already clear: this will forever change the way we work. This week, the Australian government unveiled its three-step plan to lift coronavirus restrictions and reopen Australia’s economy. Under the plan, the Federal Government expects the country to return to some semblance of normality in July. Urban Property Australia considers what has occurred, examine the present situation and explores the outlook for the economy and property markets.

Global economic conditions have deteriorated significantly since February 2020. Around the world, the COVID-19 pandemic has led to social distancing measures of various degrees to slow the spread of the virus, which has necessarily constrained economic activity. It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago.

Assuming that most of the restrictions have been lifted by the end of the September 2020 quarter, the Australian economy is forecast to contract by 6% in 2020 before increasing to 6% in 2021. Under this scenario, the unemployment rate is expected to decline substantially from its June 2020 peak of around 10% but to remain above its pre-COVID-19 level until 2022.

Although latest Melbourne housing values reached all-time highs again as at April, given the collapse of consumer confidence levels and the impending slowdown of population growth, demand for residential property will soften through the remainder of 2020. Urban Property Australia expects that the diminished demand for residential property will adversely impact housing prices and rental levels through 2020 at the least.

Demand by both purchasers and occupiers has begun to soften for Inner-City apartments, as reflected by increase in vacancy levels and limited price growth. Constrained by tighter lending conditions for developers and diminishing buyer appetite for Inner-City apartments, the development pipeline for Inner-City apartments is projected to decrease in coming years.

Despite the low vacancy levels across Melbourne’s office markets, the current uncertainty in the market as a result of COVID-19 is likely to result in tenants delaying leasing commitments. Similarly, investment activity is likely to be impacted by the pandemic with purchasers to have increased focus on income security and tenant covenants with projections of unemployment to double in the short term.

The boom in online shopping amid the coronavirus lockdown has underpinned demand for industrial property highlighted by the recent spate of consumer ‘panic buying’. Consumer demand for online delivery is likely to continue in the current environment which will only drive quicker adoption fuelling the need for additional industrial accommodation in the medium term.

Retail turnover growth continued to moderate through 2019 which resulted in an increasing number of retailers entering voluntary administration. Investor sentiment has also deteriorated significantly since the spread of the COVID-19 pandemic given the uncertainty towards the outlook for income and vacancy.

Under the three-stage plan agreed to by the states and the Commonwealth to reopen much of the economy by July following the COVID-19 lockdown, approximately 850,000 people are forecast to be back in work.

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