Queensland’s commercial leasing markets are poised for a bumpy ride in the months ahead, with some asset classes tipped to do better than others.
While the industrial sector is forecast to strengthen, the outlook for the office market is mixed, and retail is set to have the hardest road to recovery of them all.
The Queensland economy will play a key role in the outcomes for each asset class, but more positives than negatives appear to be on the post-pandemic horizon.
“Going forward, infrastructure will remain a support, but both the other drivers – migration and tourism – will be affected by COVID-19,” JLL Queensland and executive director capital markets managing director Paul Noonan said.
“Nevertheless, domestic tourism will open up long before overseas tourism and help Queensland’s local economy.”
The shining light for the commercial leasing sector is expected to be the industrial sector, and in particular transport and logistics, the experts say.
CBRE industrial & logistics senior director Peter Turnbull said they were expecting to see demand in the industrial sector, even if it took a while to reignite.
“We do expect there to be positive demand from e-commerce, third-party logistics, warehousing and distributions businesses, as well as increased interest from some operators in the manufacturing sector,” Mr Turnbull said.
“Brisbane’s vacancy will decrease if demand is strong, as most of the larger developers are likely to hold back on any speculative developments they were considering.”
The development apprehension may provide a shortage of quality stock and allow the owners of vacant buildings, and speculative buildings under construction, to capitalise on potential increased demand, he says.
On the other hand, demand from tenants looking for small office space is tipped to contract following the crisis, according to Cushman & Wakefield Queensland head of office leasing Peter Dodd.
“The Brisbane market has seen a significant drop in inquiry, particularly in the sub-1000-square-metre market, with many tenants unsure of what their business will look like post-pandemic,” Mr Dodd said.
“Many larger tenants are forging ahead with their accommodation strategies, albeit with greater attention to managing staff numbers and densities.”
Tenants would also likely extend their leases rather than move, he said, if the fit-out remained appropriate as well as the ability to use the incentive as rental abatement.
“There will be significant changes to office densities, as well as tenants re-assessing hot-desking and activity-based working to ensure their staff remain safe and productive in a post-COVID-19 office environment,” Mr Dodd said.
Colliers International office leasing national director Matt Kearney said many employees were looking forward to returning to their workplaces and seeing their colleagues following the lockdown.
But interaction and collaboration would not be the same as it once was.
“Social distancing measures will become the norm in the short-term and landlords are addressing the way in which their buildings will have to adapt to this from an operational perspective,” Mr Kearney said.
“The next three to six months will be an experiment like no other in office markets across Australia.”
The retail recovery, on the other hand, is expected to be slow, even following the relaxation of coronavirus-related restrictions.
CBRE Pacific Retail Property Management Regional Director Meagan Wakefield said occupancy levels had started to improve in early May but varied by sector.
Fashion retailers in sub-regional assets had so far been the hardest hit, she said.
“Sub-regionals have been significantly affected where there is a high proportion of fashion retailers,” Ms Wakefield said.
“Where service is high, the impact has been much lower.”
Overall, the retail leasing market has been significantly impacted with very few deals negotiated during April, which was a situation expected to continue until June, she said.
“Rental levels have dropped slightly, however, it is hard to say if this is a result of COVID-19 or just a continuation of what was already being experienced in retail in 2020,” Ms Wakefield said.
She said that projects not due to open until next year had so far been relatively unaffected by the crisis.
Neighbourhood and subregional incentives were also generally at the same levels as prior to the crisis with the impact on larger assets not yet clear.