Lockdowns dent, but don't destroy commercial property confidence

Confidence levels in commercial property remain resilient despite Australia’s biggest office markets grappling with lockdowns, new research has revealed.

The latest edition of the ANZ/Property Council of Australia industry confidence index showed that while confidence overall was lower than at the end of June, optimism remains much higher than at the same time last year.

Property Council chief executive Ken Morrison said the level of disruption the property industry had faced over the last quarter meant that remaining above historic averages was a remarkably resilient result.

“The property industry clearly has faith in Australia’s capacity to rebound and recover,” Mr Morrison said.

“As we transition through the stages of the National Plan, industry confidence will be strengthened by clarity and consistency in government policies as we reactivate our major cities.”

Nearly 60 per cent of respondents nationally said they expected the impacts of the pandemic on their business would improve over the next three months, with just 12 per cent expecting conditions to get worse.

Two thirds of respondents said the hospitality and tourism sectors would continue to be most impacted by COVID, followed by commercial offices at 18 per cent and retail at 12 per cent.

Western Australian respondents were the most confident, with WA the only state or territory with increased capital growth expectations over the quarter.

But while Property Council of WA executive director Sandra Brewer was pleased to see the state claim the title of most optimistic property market, she called on the state government to provide details on when border restrictions and the possibility of snap lockdowns would be eased.

“Restrictions and controls to keep WA COVID free have allowed the state to thrive, and now we need to chart the way to reopening,” Ms Brewer said.

“A clear roadmap out of border controls and lockdowns is needed to incentivise vaccination rates, maintain business and investor confidence and reopen - not just to Australia, but to the world.”

Property Council Queensland executive director Jen Williams shared a similar sentiment, saying the Queensland government needed to help boost falling confidence by providing details on how the state would emerge from pandemic-related restrictions.

Ms Williams said many businesses in retail, hospitality and tourism, which would typically be gearing up for a busy festive period, needed certainty on when the economy would be fully reopened.

“While industry sentiment is still positive, businesses are unable to withstand the financial and psychological burden of changing restrictions,” Ms Williams said.

“Many are struggling to survive or holding off on expansion or growth plans until there is greater certainty on when ‘COVID-normal’ can expect to be reached.

“Other states have now clearly indicated when remaining restrictions will be eased and how their states plan to live with COVID.

“Queensland risks being left behind if it does not move quickly to provide certainty to businesses that rely on the national and global economy for survival.”

The survey showed the biggest issue for Queensland respondents was housing supply and affordability, after a sustained period of elevated interstate migration and rampant home buying activity created a severe shortage of ready-to-develop land.

“Unless considerable resources are thrown at addressing this shortage, our state will not be able to accommodate the expected influx of interstate and international migrants once our borders are reponed,” Ms Williams said.

In New South Wales, optimism remains high despite the state’s current struggles with its Delta outbreak.

Property Council of NSW executive director Luke Achterstraat said the return of 100 per cent capacity in the state’s construction sector had done a lot to boost confidence across property sectors.

But while most respondents expect conditions to improve over the next three months, housing was their number one concern.

“Housing supply and affordability not only remain the most critical issue for state governments, but quarter on quarter the negative sentiment around this has increased, demonstrating the challenges being faced by the industry and local communities,” Mr Achterstraat said.

Meanwhile, Victoria has emerged as Australia’s most pessimistic state, with respondents naming economic growth as their most pertinent concern.

Victoria recorded the lowest score of any state on the Property Council’s confidence index, at 115 points.

Property Council Victoria executive director Danni Hunter said the fact that Victoria remained in positive territory after its lockdown issues was testament to the confidence property industry players had in a post-COVID recovery.

“With the vaccine rollout rapidly advancing over the last three months and a roadmap to get our communities and economy back on track, it is clear there is an air of positivity for the future,” Ms Hunter said.

“But we can’t bank on confidence alone.

“We need every section of the economy firing for Victoria to succeed, and this means reopening the construciton and property sectors as quickly as possible and getting the 320,000 Victorians in these critical sectors back to work.”

Victoria’s state government announced this week that its construction industry would get back to work by Tuesday October 5, under a new set of safety guidelines including workforce caps to protect workers.