Commercial Property 2021: Industry Reviews the Year


It has been a turbulent year for the commercial property industry which remains very much a work in progress thanks to the challenges of Covid-19.

Landlords and developers in the beleaguered office sector of Australia’s once-humming central business districts are still coming to terms with the implications of Covid-19 after the pandemic accelerated the rollout of, and investment in, digitally connected ways of working remotely.

The retail sector is showing early signs of a strong recovery in Sydney and Melbourne particularly after a prolonged period under stay-at-home orders with sales figures recently rebounding above pre-pandemic levels.

Meanwhile, the momentum in the industrial property sector has shown no sign of slowing after hitting record development levels and forcing further contraction in prime yields on asset sales. Record take-up of industrial space and low vacancy rates have also put a rocket under industrial rents.

Healthcare asset sales volumes and prices are now hitting record levels with investment by listed real estate investment trusts increasing 12-fold in the past 18 months.

Student accommodation and tertiary providers have continued to ready new projects despite a lack of clarity from the federal government about when foreign students will be allowed into the country, while the nation’s hotel sector seemingly has a long road back.

To find out more about the year that was, we asked some of those in the commercial property industry for their biggest takeaways and learnings from a trying 2021.

Andre Bali
Head of Development
Centuria Capital

“The state and international border closures and pandemic-enforced work restrictions have been challenging, however, our developments have largely kept to schedule and on budget.

“This is in part credited to having a geographically diversified workforce with development personnel based in Brisbane, Sydney, Melbourne, Perth and Auckland. Geographically dispersed staff was a key benefit to ensuring business continuity throughout 2021.

“With limited high-quality stock in certain real estate sectors, such as industrial and healthcare, during 2021 Centuria focused its attention on delivering new, sustainable property to these markets and developing more assets for its core funds platform.”

Andrew Ballantyne
Head of Research

“In 2021, we saw improved liquidity in the commercial real estate sector. Our estimates for 2021 transaction volumes suggest we will surpass the level recorded in 2019 and reach a new record high.

“The industrial and logistics sector was the standout performer while in the office sector, investor demand remained strong for long WALE product, but there was capital deployed across the risk spectrum from core through to development sites.

“The defining moment for me was the trade of a number of large shopping centres in the second half of 2021 at book valuation. The trade of these assets provides greater confidence in asset pricing and we will see more larger centres trade in 2022.”

Luke Berry
Director – Sales Marketing
Thirdi Group

“Around July-August there was much in the negative and alarmist media about how the CBD and office sector was dead and that it was going to take many months, or even years, for it to return to normal.

“I think if anyone takes a walk in the Sydney CBD, or Australia’s other capital cities, this is far from the truth and the CBD is showing early and strong signs of returning to normal.

“My biggest takeaway is to not base decisions on alarmist media of the moment, but focus on the long game when it comes to projects acquisitions and launches.”

Sally Box
Managing Director
Cabot Properties

“There was a tremendous reallocation of capital into the real estate sector across 2021, specifically into industrial, due to its strong growth prospects and robust yields.

“New entrants into the sector both globally and locally have increased competition and seen transactions occur at record pricing.

“In Australia we have seen significant yield compression and price increases as a large volume of capital chases a limited number of deals. From an investment point of view, real estate fundamentals are more important than ever.”

Matthew Burke
Regional Manager – Pacific

“The accommodation industry has been heavily impacted again in 2021 and it was highly encouraging to see a nationwide resurgence in performance from February to June as national occupancy peaked at 61.5 per cent in April.

“Unfortunately this proved to be a false dawn—as the Delta outbreaks shut or hibernated the nation’s accommodation sector.

“The pandemic has given greater attention to many regional parts of Australia and provided opportunities for Australians to see more of the country which is reflected in regional destinations consistently seeing much higher comparative performance to 2019 than capital cities.”

Chakyl Camal
Chief Executive
Panthera Group

“The property industry’s successes during the challenging 2021 period was underpinned by the sustainable performance of those assets which ultimately were providing customers access to the products and services that satisfied their daily needs.

“Office landlords discovered that it was more difficult to validate their value proposition, and this will likely have significant impacts in future ways of working.

“With low interest rates and large supply of investment capital, the financial security of long leases supporting everyday needs, satisfied investor demand and resulted in sharpened yields in the industrial and convenience retail sectors.”

Belinda Coates

“Commercial developers have long been attracted to the tertiary campus which have provided access to high levels of foot traffic, and the tertiary tenant—providing long-term certainty—often committing for well over 30 years.

“With the uncertainty of the pandemic, this has made tertiary development partnerships untenable in the short term.

“In the longer term, tertiary is driving a different conversation with a multitude of partners being considered—from retail, research, medical, aged care, commercial and even manufacturing.”

Trudy Crooks
Managing Director
Resort Brokers

“What a year it has been. I think we have all realised that we took a lot for granted. If you had told me two years ago that I would miss getting on a plane every few days I would have never believed it. I think we are all much more adaptable and resilient than we would have ever thought.

“One of the key takeaways for us as a business, is that while we have adapted and can do things much more using technology, nothing will entirely replace meeting with your team and clients face to face.”

Jesse Curtis
Head of Industrial Real Estate
Centuria Industrial

“Consumers want their purchases delivered within short time frames, so transport and logistics operators want to be close to densely populated areas to move their goods more quickly.

“Consequently, operators have changed their stock strategies from ‘just in time’, to ‘just in case.’ During the year we also saw a shift from shops to sheds. There is a very strong correlation between industrial space take-up and increase in the percentage of online sales.

“Retailers have increased their online presence especially those within the non-discretionary sector such as grocery stores and pharmaceutical providers. This has led to a strong demand in the cold storage industrial sub-sector to cater for perishable goods logistics.”

Michael Di Russo
Joint Head of Property
Clean Energy Finance Corporation

“The year marked the execution of pent-up demand following on from the restrictions of 2020, as the market capitalised on low interest rates and an increase in confidence.

“The appetite for responsible investment has increasingly become an important part of decision making as organisations move from environmental, social, and governance considerations being a check-the-box component to a considered requirement for investments.

“The mid-market space has been one area that has seen a real take off in the value in sustainability in commercial property.”

Stephen Gaitanos
Managing Director

“​​Without doubt the defining moment for us, and for the country, has been the very recent reopening of the international border on December 16 for vaccinated skilled migrants and international students.

“Undoubtedly a key moment in time after many false starts but with the strong resolve and commitment of the federal, NSW and Victoria governments the reopening news gives us hope for a stronger 2022 and beyond.

“Brand Australia has certainly come under pressure during the past 18 months but with border certainty and very high vaccination levels, Australia is well positioned to recover in 2022. We will never take for granted global human mobility. Customer safety, security and wellness have never been more important.”

Michael Gibson
PwC Australia

“Covid-19 accelerated the move to online online learning for students, and drove change in teaching and research practices, including the sudden adjustment to academic and professional staff working from home.

“However, while this model of delivery looks set to become part of mainstream education delivery, the campus still has a critical role to play in the overall student experience.

“To achieve this hybrid model of learning, the campus of the future will be different both in its configuration, the way it is used and how future developments are funded.”

David Hall
National Director – Industrial

“The standout moment for me was in the second quarter where we reached sub 1 per cent vacancy rates across all major industrial markets in Sydney—some major markets like Eastern Creek went to 0 per cent.

“This was a reflection of the demand growth over the past 18 months and demonstrates the strength of the industrial market and the metrics beyond the pandemic look very strong.

“The key takeaway is how occupiers need to review their real estate requirements with a longer lead time, given what little vacancy options and lead times there are for development, to ensure they can meet their operational goals and not allow real estate decisions, or lack thereof, to constrain the business growth.”

Matt Hemming
Mitchell Brandtman

“Rapidly shifting from ‘gloom’ to ‘boom’ brings a lot of challenges and uncertainty especially in an industry that needs time to change and adapt.

“Never in my time have I seen such volatility in material pricing and supply issues, which caught many people and businesses off-guard across many sectors.

“Fluid pricing and uncertainty in supply don’t mix well with fixed contracts and for some, this has no doubt been and is still a tough, profitless boom.”

Sass J-Baleh
Head of Industrial Research

“Throughout 2021 we have observed the continued strength of the industrial asset class which now has the lowest level of vacancy ever recorded for the Australian market at 1.3 per cent as of the half year while there has been an all-time high take-up of gross floorspace over the past 12 months, equating to approximately 3.5 million square metres.

“More than 80 per cent of lease transactions were due to tenant expansion or new entrants, rather than pure relocation with rental growth, particularly in the Sydney and Melbourne markets.

“Land values have appreciated by 23 per cent year-on-year for 1.6 ha lots across the country after the highest level of sale volumes for investment sale transactions on income producing assets, totalling $15 billion.”

Oscar Ledlin
Ledlin Group

“The key takeaway from 2021 for Ledlin has been that consumer behaviour has never changed so rapidly.

“The terms commercial property and innovation aren’t often paired, but 2021 has made clear that the desires of our occupants are ever changing, more now than ever.

“Inclusions that amplify touchless useability—such as bathrooms, lighting and mobile phone integration access control systems—are some surface level references, but the take-up of our industrial properties by previously retail and office space operators really echoes the change in use of quality office warehouses.”

Brooke Lloyd
Cox Architecture

“Throughout the past two years we have adapted to the new global paradigm and redefined the way we approach design by anticipating the inevitability of change.

“Embracing hackable and nimble solutions that not only provide value to our clients but also positively contribute to the climate change narrative by eliminating avoidable churn.

“Finding the balance between the pragmatic and poetic, each of our projects is united by this tension to create places that people love.”

Louise Mason
Chief Executive – Commercial

“A key takeaway from 2021 is change is a constant, and we need to look for highly adaptive and flexible solutions to create workplaces of the future.

“The impacts of Covid-19 have sped up the changes we were seeing before the pandemic. The rise of online shopping, the importance of fulfilment centres close to urbanised areas, and the changing landscape of the office have all been accelerated during the pandemic.

“The way that we will use the office will change. It will be a place of collaboration, community, and connection. While this may reduce the overall area that occupiers require, it may not be as significant as first anticipated.”

John Musca
National Director – Pub Investment Sales

“The ‘trade pop’ experienced with reopening of pubs in October highlighted the essential role that hospitality venues play in commercial and residential communities.

“The sector has witnessed an extraordinary period of asset liquidity nationally driving cross-sector yield compression and literally creating transaction gridlocks and acquisition supply challenges.

“We’ve experienced five years’ worth of asset class consolidation in 12 months, while cross-border expansion became a priority for larger groups and finally the emergence of ‘blue line fever’ where the race to secure beach or waterfront assets in lifestyle regional locations mirrored the residential seachange that blossomed across the country.”

David Oudshoorn
State Director
MaxCap Group

“The overall confidence and resilience of the industry has been strong, despite another round of government lockdowns, particularly from capital, local and offshore, looking for exposure to the industry across both debt and equity.

“This is evidenced on the equity side by ESR’s acquisition of the Milestone Portfolio and the meteoric rise of the logistics sector and in debt, the continued development of real estate debt as an institutional asset class with Apollo Global Management taking a significant stake in MaxCap.”

Phil Pearce
Chief Executive
ESR Australia

“Industrial eclipsed the office market in some respects, with values surging and vacancy plummeting, driven by shifts in how people consume, which went from analogue to digital in a matter of weeks.

“Also, the issues with supply chains have made suppliers look at inventory management and inventory levels resulting in suppliers moving away from ‘just in time’ to ‘just in case’—the combination of these two factors has seen a surge in demand for warehouse space.

“This behaviour soon became embedded and meant the demand accelerated at all supply chain points, from factories and warehousing through to fulfilment.”

Mark Power
Senior Director

“There have been two key standouts for the property industry for 2021—the continued growth of alternative real estate investment management firms such as Qualitas and the emergence of environmental, social, and governance considerations across the property industry.

“The level of discussion and focus on product delivery, which is highly sustainable, has gained significant traction, particularly in asset classes where the economics of sustainability and development are perfectly aligned.

“Office projects are now focussing on what the new office will look like post pandemic and delivering a highly sustainable building is part of the equation.”

John Sears
Head of Research
Cushman & Wakefield

“What was fascinating to me was the versatility and adaptability of the Australian commercial real estate market.

“While some sectors have suffered through the pandemic, others took up the baton and drove demand.

“The industrial sector is the most obvious example with the average industrial yield falling below the average office yield during the pandemic while change was also evident in the office sector with Sydney CBD’s office leasing market showing surprising strength, despite the 100-plus days in lockdown, as technology firms help to drive tenant demand.”

Andrew Simons
Head of Industrial Development
Charter Hall

“The standout this year has been the shift in mindset in the urgency of our tenants to adopt automation.

“Pre-Covid the general view was that automation was a good thing to acknowledge and possibly pursue.

“Post-Covid the mindset has changed to automation being something to consider as a priority noting the changing world and the benefits of scale, efficiency and flexibility automation can bring to their businesses.”

Sarah Slattery
Managing Director

“Buildings produce 25 per cent of Australia’s greenhouse gas emissions so one of the highlights this year for Slattery was becoming the first quantity surveyors in Australia to measure embodied carbon.

“Our carbon planning service aims to measure the upfront embodied carbon early enough in the project to enable meaningful change to design, material selection and-or procurement to help our clients reduce the environmental impacts and associated costs of their developments.

“Since launching in July, we have measured approximately one million square metres of office, residential and health projects for REITS, government and developers.”

Nick Sparks

“Coming off a strong 2020, the exponential growth of the industrial and logistic sector is a standout with prime industrial yields for the first time sinking below prime office yields on the back of record capital investment in the sector—a historic milestone worth reflecting on.

“Consumption rates for land take up have been as strong as ever, and pricing for assets across all areas of the sector, from englobo development land through to land subdivision sales and tenanted asset sales, remains incredibly strong and shows no sign of abating yet.

“Looking to 2022, can the government keep up with land supply? And as for rents in the sector, surely they will have to start to escalate significantly on the back of increasing land prices—will that extra rental cost be passed on to consumers?”

Vivek Subramanian
Managing Director
Sandhurst Retail & Logistics

“Ongoing lockdowns and restrictions had an effect on retail property, with greater dependence on neighbourhood shopping.

The 5km travel limits and the closure of non-essential retail drove increased demand for high-quality local assets, providing an opportunity for developers, landlords and operators to capitalise on the higher visitation rates.

“One of the defining moments for us in 2021 was our expansion into logistics, a sector we think will continue booming into 2022 and beyond, particularly as the knock-on effect of a changed retail landscape.”

Adam Vaggelas
GreenFort Capital

“In general, property markets have continued to remain resilient over 2021.

“However, we have seen a re-weighting of capital allocations to needs based assets with domestic demand drivers like general residential, seniors living, childcare, neighbourhood retail, medical and data centres.”

Leigh Werner
Head of Research

“For me, 2021 was all about ‘sheds and beds’ as post-pandemic leasing conditions have been testing for the office and retail markets.

“A defining moment of the year was the $3.8-billion Blackstone’s Milestone Portfolio, which is not only the largest transaction of the year, but repriced the sector and helped push yields far lower than ever before.

The other sector that has benefited from this search for solid risk-adjusted returns has been the nascent build-to-rent sector. While still in its infancy, the stable cashflow the sector can offer has become a lot more attractive and investor interest in the sector has undoubtedly grown enormously over 2021.”


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