Landlords and governments must prepare for commercial changes in the post COVID-19 era

Published in Hunter Business Review July 2020

The various impacts of COVID-19 on commercial and industrial property markets are subjects of hot debate.

Prognostications from a plethora of experts have been coming at us fast and furious. Predictions have included the demise of strip shopping, the decreasing need for floor space in the commercial offices and the ever-expanding demand for online warehouse space.

Getting back to normal

Three months ago, in the autumn, we all thought the world as we know it was going to change forever. Skipping forward to winter, and the changes will depend on when we truly reach the post-COVID-19 era. Concepts such as social distancing are present, but like all good ideas, it is challenging to break lifetime habits, and already we are seeing evidence of many in the community slipping back into old ways.

For example, I am finding many people wish to shake hands again on a business level while kissing and hugging are back as social greetings. Shops and offices have returned to business with little social distancing being followed. These are strong indications that people will slide back into their old ways. Even in the UK where lockdowns were tighter and more prolonged than in Australia, as soon as people got a little leniency, they returned to business as usual promptly.

Top three areas for change in the post-COVID19 world

Provided Australia does not slide back into the tight controls of April and May we see little permanent change to many areas of business. That said, there will be some differences, and I have nominated three areas of business, including corporate travel, office work and the way we shop, which will be conducted differently in the future.

  1. Reduced corporate travel will have extensive impact
    In the past, many hours and even days of executives’ time was lost on planes and living in motels. Because of COVID-19, the business world has learnt to use technology such as Zoom and locally developed iSee (www.iseevc.com.au) to reduce the need for face to face meetings. The higher adoption of video technology will reduce the demand for airline travel, hotel accommodation, hire cars and even restaurant meals. In turn, this will impact employment opportunities and even landlord returns from their commercial hospitality industry-correlated investment properties.
  2. Working from home is a viable choice for some
    Like corporate travel, COVID-19 has forced businesses to embrace technology to enable their employees to work from home (WFH). The idea of operating from a home office only works for some staff in some businesses. However, the ease of WFH now makes it a viable choice for more firms and their employees.
    Those directly affected by the new appetite for WFH include office landlords as the need for commercial space contracts, as well as cafes and lunch venues who will need to pivot as the density of office workers decreases.
  3. Online shopping continues to expand
    For many Aussies, lockdown taught us how to shop online. This trend will only continue to expand with Amazon firmly focused on developing its massive “Fulfilment Centres”. These huge multi-storey warehouses planned for Western Sydney and Melbourne will be backed no doubt by an advertising blitz to attract more customers to the retail portal. At the same time, as the decline in discretionary income continues, the choices and savings offered by online shopping guarantee the likes of Amazon will continue its push.
    Nor do you need to be Nostradamus to realise the Amazon push will impact landlords of retail strip shops and the mega shopping centres.
    With all change comes initial losses, especially for those with an exposure to retail. This situation will be exacerbated dramatically once the Federal Government’s JobKeeper ends. This government stimulus is the only factor keeping many small businesses afloat. These ghost businesses will shut their doors once JobKeeper finishes in September and like a prominent receiver told me last week, “we do not have enough receivers in Australia to cope with what’s coming.”
    Most of these ghost businesses are in the retail and foodservice industries. They were already struggling with the decline in money flowing through the economy. Alarmingly, the real impact is still to come.

Retail needs government support

In the wake of COVID-19 and the continuing threat of online shopping, retailing along shopping strips needs assistance from their local councils.

Look at the vacancies along Hunter Street. Has anyone noticed the vacancies that are mounting where there is no longer any street parking? These vacancies are easily attributable to prevailing parking policies and street design.

The shame is that the people making these policy decisions have never been in business or faced explaining to a bank a decline in turnover. If the ultimate result of the new parking policy and design of Hunter St changes were an improvement, then the pain for retailers and landlords on Hunter Street may have been worth it. But with 17 vacancies on the northern side of Hunter Street between Worth Place and Merewether Street, which is a strip of just 400 metres, then it’s clear the pain has been passed directly to the building owners since their tenants are no longer viable.

The pain was rammed home to me recently when our office sold a building that the elderly owners could no longer afford to keep. Not only were their tenants losing money, but the NSW Government increased the value of the land that much it meant the combination of land tax and council rates was more than the rent paid by the elderly landlord’s tenants. They were losing money and had to sell.

Immediate assistance for retail strip areas such as Hunter Street is needed where land tax and council rates are killing businesses and making it nonviable for landlords. Both levels of government need to develop well-considered and designed infrastructure such as parking with a focus on businesses first – and not the ultraism of academic designers who have never tried and wouldn’t survive running a small business.

If you’re considering investing, buying or leasing commercial space in the Hunter region, contact Raine & Horne Commercial Newcastle on (02) 4915 3000.

Hunter Business Review – Page 22

Post written by Steve Dick
0425 302 771
steve@rhplus.com.au

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