The flow on effects of COVID-19 are vast and varied, with plenty of changes seen in the real estate industry since 2019. With many Australians’ realising their dream of a regional move – thanks to more flexible working arrangements and a refreshed perspective – residential sales in the regions are booming. The Australian Bureau of Statistics revealed that 2020 saw the largest net inflow on record from capital cities to regions. As a result, demand for services in the regions are experiencing phenomenal growth, making investment in commercial property in the regions a sound portfolio addition.
Bricks and mortar retail spaces and city offices have felt the effects of a COVID driven digital shift. COVID has turbocharged the growth of online retail, with NAB merchant data showing a 62.6% increase in online retail in the 12 months to July 2020. This is driving a greater demand in warehouse space and 3PL (third party logistics) facilities. Alongside the boom in e-commerce, COVID has led to consumers rediscovering local stores and shopping precincts and establishing stronger connections within their communities. This trend of ‘localism’ has been driven by restrictions on travel, and a desire to support local businesses through difficult times. With more employers offering flexible working arrangements, many CBD office spaces are forever changed. It’s predicted that an average of 50% of the workforce could be working from home at least two days a week in the post-COVID world. As with the accelerated shift to online retail, COVID has accelerated the move to digital, flexible workplaces.
With many local governments committing significant investment into the regions, population growth is set to continue. For example, regional Victoria is benefitting from The Big Housing Build project – where $1.25 billion has been committed to providing affordable housing to meet demand in regional Victoria. Similarly, South Australia has in place the Regional Growth Fund – a commitment of $160 million over 10 years to support regional South Australia. With each state and territory pouring significant investment into regional housing and infrastructure, for sustainability, local businesses must follow.
While population growth is a key driver for demand in commercial property, there are several other factors that make investing in commercial property an attractive portfolio addition:
• Greater return on investment – commercial property currently offers the highest cash flow in Australian real estate and typically provides strong returns through capital gains and income. Tom Harrop from First National Real Estate Tweed Sutherland (Bendigo, Vic) says “Despite the difficulties of COVID, we’ve had a better performance over the past 18 months than in the preceding 10 years. The prices our vendors have been achieving have been staggering. Cap rates have been around 6-6.5%, but two of the most recent in the Bendigo CBD have achieved a touch over 5%.”
As with any investment, investing in regional property requires careful research and analysis. Here’s what to look out for:
1. Population growth – focus your eye on areas with a rapidly rising population and an investment in infrastructure to match.
As with any investment, investing in regional property requires careful research and analysis.
First National Real Estate has over 320 offices across Australasia. Get in touch with your local office to discuss regional investment opportunities today or visit www.firstnational.com.au
The information is general in nature and does not constitute for professional financial planning advise. For investment advice that is right for you contact your preferred financial planner or financial institution. For commercial investments opportunities contact your local First National Real Estate office.