Q3 2020 – Executive Summary
October 15th 2020 | , Urban Property Australia
To contain the spread of the coronavirus, the Victorian government imposed one of the most stringent lockdown measures in the world. While COVID cases have fallen substantially, economic activity has contracted dramatically with Melbourne impacted more than any other Australian city. Urban Property Australia dissects the effect of the pandemic on the property market to date and what the “new normal” may look like post-COVID.
Australia’s economic and health outcomes compare favourably with those of most other countries. While Australia has lower COVID case numbers per capita and lower mortality rates than all the G7 nations with the exception of Japan. Australia has also outperformed in economic terms, with a smaller fall in GDP than every major advanced economy over the first half of 2020. Assuming the virus is effectively contained in Australia, economic activity is forecast to pick up from late 2020 and into early 2021.
With COVID cases more prominent in Melbourne than any other Australian city, similarly the pandemic has adversely impacted the Melbourne residential market more than elsewhere. Melbourne house prices have fallen the most across Australia, declining back to 2017 levels while vacancy rates have risen to eight-year highs. Urban Property Australia believes that there remains a risk of further falls in house prices given the historically low immigration and rising unemployment.
With the pipeline of supply above average and subdued rental conditions likely to persist for the short term given the lack of international migration, Inner-City apartment values (particularly investor owned) are likely to remain under pressure despite prices steady in 2020 to date.
Regional residential markets have to outperformed the metropolitan area with both median prices and rents hitting or approaching all-time highs. The resilience in regional values can be attributed to a number of factors including the lower price levels than Melbourne coupled with the increasing demand of people relocating out of Melbourne as a result of the pandemic.
With Melbourne still in lockdown as a result of a second wave of COVID cases, the impact of the pandemic won’t be realised until 2021. Vacancy rates have increased across all Melbourne’s office markets with many tenants having delayed relocation plans limiting leasing activity. As a result of the increased economic uncertainty, prime office yields have begun to rise from their historical lows of the start of 2020.
The ongoing structural changes which have resulted from the pandemic have demonstrated the critical need and reliance for industrial and logistics facilities. eCommerce trade has grown by approximately $7 billion in 2020 and now accounts for 11% of all retail trade. In contrast to other sectors, leasing activity remains above the long-term average as occupiers continue to invest in their supply-chain operations.
Over the year, annual retail trade grew at the lowest growth rate since 2013 and will likely contract as the influence of the Victorian lockdown further affects spending. With the lockdown having forced many occupiers to permanently close, the vacancy rates of Melbourne’s prime retail strips and Melbourne’s CBD retail market have increased to 20 years.
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