{"id":30095,"date":"2021-01-15T14:39:40","date_gmt":"2021-01-15T01:39:40","guid":{"rendered":"https:\/\/propertynoise.co.nz\/au\/?p=30095"},"modified":"2021-01-15T14:39:40","modified_gmt":"2021-01-15T01:39:40","slug":"10-predictions-for-australian-property-markets","status":"publish","type":"post","link":"https:\/\/propertynoise.co.nz\/au\/10-predictions-for-australian-property-markets\/","title":{"rendered":"10 predictions for Australian property markets"},"content":{"rendered":"

PHOTO: City planners are expected to rethink their centralised strategies in 2021. Photo: Shutterstock<\/strong><\/p>\n

REPUBLISHED WITH PERMISSION | API MAGAZINE<\/a><\/p>\n

After a year of unprecedented change across Australian property markets, commercial and residential experts at Knight Frank share 10 trends likely to take off in 2021.<\/p>\n

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  1. Urbanisation on hold, but cities will re-assert their strength<\/strong><\/li>\n<\/ol>\n

    At one level, COVID-19 seemingly threatens to up-end the status quo of city-centricity, but the weight of evidence on the relative productivity of cities argues strongly that they will remain the engine rooms of the national and global economy.<\/p>\n

    Knight Frank\u2019s chief Australian economist, Ben Burston, however, said economic growth would no longer be dominated solely by capital cities.<\/p>\n

    \u201cRegional cities like Wollongong, Newcastle, Geelong and the Gold Coast will see accelerated growth,\u201d he said.<\/p>\n

    \u201cThey have sufficient scale and critical mass of service sector jobs to continue to develop rapidly, while also benefiting from a tilt in lifestyle choices due to the pandemic that will see some people opting for a less CBD-centric working life.\u201d<\/p>\n

    In major cities, Mr Burston said centralised models of urban planning were likely to be scrutinised closely over the next 12 months.<\/p>\n

    \u201cThis will partly be motivated by shifting lifestyle choices, with some households seeking the wider spaces of a suburban lifestyle,\u201d he said.<\/p>\n

    \u201cBut city planners will also have in mind the desire to mitigate the risks presented by the pandemic of having key services and employment clusters in one concentrated location, and the challenge of supporting infrastructure and services for a more dispersed community.\u201d<\/p>\n

    Sydney is already leading the way in that regard, Mr Burston said, with its Three Cities plan calling for growth hubs in Parramatta and a Western Parkland city centre in proximity to the Western Sydney Airport.<\/p>\n

    \u201cThis has seen the state government shift parts of its activity to support growth, and the experience of the pandemic will serve to reinforce these efforts,\u201d he said.<\/p>\n

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    1. \u2018Thinking big\u2019 on next wave of transport and social infrastructure projects<\/strong><\/li>\n<\/ol>\n

      Governments will be seeking to move the needle on economic recovery in 2021 with an ongoing pipeline of new infrastructure projects, enabled by the low interest rate environment.<\/p>\n

      \u201cWe expect to see renewed debate on projects previously considered to be too expensive or not an immediate priority, such as faster rail connections between Sydney, Newcastle and Wollongong, additional airport capacity for Melbourne and improved access for cyclists in all of our major CBDs,\u201d Mr Burston said.<\/p>\n

      \"High<\/p>\n
      Building a high-speed rail network would significantly boost Australia’s economic recovery. Photo: Shutterstock<\/strong><\/em><\/div>\n<\/div>\n

      \u201cBesides these transport initiatives, we expect more emphasis to be given to social infrastructure projects going forward, encompassing social and affordable housing, renewable energy and aged care facilities.\u201d<\/p>\n

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      1. Offices will adapt to remain key to collaboration, training and cultural cohesion<\/strong><\/li>\n<\/ol>\n

        Hybrid work arrangements will result in a shift in emphasis for offices toward their central role as an enabler of collaboration, culture and connection, with less emphasis being placed on facilitating individual, focused work.<\/p>\n

        \u201cPhysical offices will be increasingly grounded in the concept of wellness, both mental and physical, meaning greater emphasis on green spaces, exercise and retreat rooms as well as natural light,\u201d Mr Burston said.<\/p>\n

        \u201cIn an environment of higher vacancy and the greater choice this implies for tenants, lower grade space which cannot meet more stringent requirements will increasingly become redundant.\u201d<\/p>\n

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        1. The landlord-tenant relationship will need to adjust<\/strong><\/li>\n<\/ol>\n

          Flexibility will be increasingly sought by tenants, and landlords will have to adapt to these changes.<\/p>\n

          \u201cReflecting uncertainty over future space needs, large tenants will seek a mix of core leased space and flex spaces which can be scaled up and down as needed, and also look for an end-to-end service where workplace planning, design, fitout, head lease and flex space are managed under the one umbrella,\u201d Mr Burston said.<\/p>\n

          \u201cAlongside more frequent break clauses, this will place greater management pressure on assets with long WALE tenancy schedules potentially having a number of break points.\u201d<\/p>\n

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          1. Shifting pattern of prime residential demand<\/strong><\/li>\n<\/ol>\n

            The COVID-19 pandemic, subsequent lockdowns and closed state and international borders have given people time to reflect on their lifestyles.<\/p>\n

            Knight Frank\u2019s Global Buyer Survey, conducted midway through last year, showed one in four respondents said they expected to move house in the next 12 months due to the pandemic, with 40 per cent saying they would likely stay in the same location but move to a different property.<\/p>\n

            Demands on the home are expanding, reflecting changes in the way people live and use their space, according the Knight Frank\u2019s\u00a0 Knight Frank\u2019s Australian head of residential research, Michelle Ciesielski.<\/p>\n

            \"Broadbeach,<\/p>\n
            The value of prestige properties on the Gold Coast is expected to experience solid growth in 2021. Photo: Shutterstock<\/strong><\/em><\/div>\n<\/div>\n

            \u201cAs a consequence, more and more people are seeking detached family homes and favouring waterfront and rural homes in particular,\u201d Ms Cieselski said.<\/p>\n

            \u201cLarge gardens and outdoor space are now more of a priority, with the lockdown period emphasising the connection between wellbeing and the great outdoors.<\/p>\n

            \u201cAll of this will drive strong demand for prime property in 2021, with prices in our major cities set to rise, led by Sydney, Perth and the Gold Coast.\u201d<\/p>\n

            Ms Cieselski said the volume of prime listings were likely to rise in 2021, as certainty returns to the economy.<\/p>\n

            She forecast 3 per cent growth in Sydney\u2019s prime property market (the top 5 per cent of transactions by value), the Gold Coast and in Perth, in addition to 2 per cent growth in Brisbane and a 1 per cent rise in Melbourne<\/p>\n

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            1. Short supply of prestige residential rentals<\/strong><\/li>\n<\/ol>\n

              While the major cities across Australia have experienced minimal uplift in new sales listings, over the past year prime rental properties have also become scarce, in stark contrast to the mainstream residential market.<\/p>\n

              \u201cWe anticipate strong rental growth in the prestige market during 2021 driven by increased renovation activity, demand for part-time city living to complement rural or country homes and rising expat demand,\u201d Ms Ciesielski said.<\/p>\n

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              1. Investment performance will be relatively strong compared with previous downturns<\/strong><\/li>\n<\/ol>\n

                Given the high level of uncertainty over the economic outlook, forecasting returns is more challenging than normal.<\/p>\n

                “But on the basis of a gradual recovery with no further major lockdowns, we expect capital growth in the office sector to fall an average of 1 per cent for calendar year 2020 and decline by 2 per cent in 2021, leaving total returns a little over 4 per cent and 3 per cent respectively,\u201d Mr Burston said<\/p>\n

                \u201cThe investment return performance of the industrial sector will continue to be relatively strong, with total returns likely to remain around or just under 10 per cent in 2020 and 2021. This would mark a much stronger return performance than that experienced during the GFC.\u201d<\/p>\n

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                1. Premium on income security as investors look to re-weight and adapt their portfolios toward industrial and specialist sectors<\/strong><\/li>\n<\/ol>\n

                  Question marks over the strength of occupier demand in the office and retail sectors are resulting in a reassessment of risk with a greater focus on covenant strength and length of income.<\/p>\n

                  \u201cThis will continue to drive strong demand for industrial and logistics property in 2021, as investors seek to increase their portfolio weightings to the sector,\u201d Mr Burston said.<\/p>\n

                  \u201cThis will drive further yield compression in the industrial market, supported by the adjustment to lower interest rates.<\/p>\n

                  In addition, the desire for defensive income returns and diversification will see a further expansion of specialist asset classes such as healthcare, cold storage, data centres and build-to-rent.\u201d<\/p>\n

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                  1. Overseas investors to drive the office market in 2021<\/strong><\/li>\n<\/ol>\n

                    In a more challenging environment, with higher risks to income and less expectation of capital growth, we expect overseas buyers to step up their share of major acquisitions.<\/p>\n

                    \u201cMajor global funds are more accustomed to the shift-down in interest rates and lower capital growth expectations, and overseas family offices will at times be driven more by the desire to diversify and preserve capital over the long term,\u201d Mr Burston said.<\/p>\n

                    \u201cOn the other hand, domestic investors seeking higher returns will be cautious until the risks to the occupier market ease.\u201d<\/p>\n

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                    1. Lower return environment will drive appetite for debt strategies and boost competition in non-bank lending<\/strong><\/li>\n<\/ol>\n

                      The shift to a lower return environment will see a further deepening in the real estate debt market during 2021 with a proliferation in the number of lenders and a widening of their remit to offer greater diversification within the space.<\/p>\n

                      \u201cLower expected capital growth will narrow the gap between expected returns on equity and debt strategies, tilting the risk\/return dynamic toward debt,\u201d Mr Burston said.<\/p>\n

                      \u201cThe entry of new non-bank lenders into the debt market will widen competition resulting in a broadening of the scope of borrowing available to borrowers, including longer loan tenors and higher LVRs than traditional bank lenders will offer.\u201d<\/p>\n

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