How Bushfires Have Hit Australia's Commercial Property Market?

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How Bushfires Have Hit Australia's Commercial Property Market?
How Bushfires Have Hit Australia's Commercial Property Market?

The Australian continent is no stranger to the ghastly bushfires, which have been responsible for the deaths of 800 people and billions of animals since 1851. However, the 2019-2020 bushfires have wreaked havoc on a colossal level with 18.6 million hectares of land destroyed, including 5900 structures damaged and 34 human lives lost. Flora and fauna have been vastly affected as billions of animals have died and some endangered species have reached the verge of extinction.

The fires began in June 2019 and were controlled only in mid-February 2020 while exceeding the economic damage of $4.4 billion caused by the 2009 Black Saturday blaze. The situation is far worse this time as the tourism sector alone has lost $1 billion due to the crisis.

The diminishing consumer confidence has also raised concern over its impact on commercial real estate in Australia. Although the property market is expected to maintain double-digit growth, the shock waves from the bushfires and the lockdown of China due to the lethal coronavirus are going to have an influence on the figures. Let us try to understand how things can change in the next few months.  

 

The Forecast for 2020 Is Right on Its Path

Before the problem of bushfires magnified, the predictions for the year displayed an evolving office and industrial market in the country. With the Reserve Bank of Australia cutting down the interest rate to a record-low in October 2019 and strong employment growth, the demand for commercial property was expected to escalate.

The estimates were correct,  and the month of January experienced a rebound in housing prices as well as steady values for commercial properties. Most experts believe that the interest rate will fall further by 0.25% as a measure to stabilise the economy, which is feeling the heat of the shut down in coronavirus-hit China.

The travellers from the Mainland didn’t arrive this season, and the Asian markets in Sydney have been deserted amidst the fear of the deadly virus that spreads through human contact. It has been estimated that the lockdown in China will exceedingly affect businesses in Australia and lead to the loss of a billion dollars. Thus the rate cut will come through this year to keep things under control.

 

Bushfire-Affected Areas To Bear The Brunt

With the skyline of NSW filled up with hazardous smoke, it is obvious for people to stay away from the regions that were most affected by the bushfires. The extreme temperatures and strong winds which led to the catastrophic fires have brought forth the concerns related to climate change. It has played a critical role in the declining interest of buyers and investors in housing properties and commercial real estate, respectively.

While the last quarter of 2019 showed positive growth in the property sector, the recent socio-political events have changed the scenario. The wealthy investors from Hong Kong got embroiled in political upheaval, and the Chinese buyers have been locked up due to the coronavirus which has pulled back the offshore capital from the domain.

The rest of the derailment was the result of the raging fires which took months to be contained. Naturally, the suburbs which were destroyed in fire are the worst-affected followed by those where evacuations took place and then those which were put under high alert. However, experts suggest that the demand and values prior to the fires will play a role in deciding the impact on the market.

 

The 2020 Outlook Is Not All Grim

The demand for high yielding office properties will continue to soar as the jobs market is showing a solid upward trend in most cities. Although the capital gains will be slower at the beginning of the year, they will pick up after a few months as the lower interest rate will improve the buyer’s confidence and activity. The low exchange rate and better yields will attract offshore investors who will be putting more money into the sector.

Besides various affluent investors are planning huge investments in high-growth suburban markets like Parramatta. The supply of office properties will experience an increase in the Melbourne region with new developments taking shape in Docklands and the Western Core. The rents will be amplified in the office markets of Adelaide, Brisbane and Perth due to declining vacancy rates and strong economic conditions.

The booming e-commerce sector will make sure that the industrial properties stay highly sought-after in well-connected areas. The infrastructure development in suburban regions will add to the growing demand for warehouses and boost the supply-chain networks.

 

The Range of Impact Is Dependent On The Devastation

Although Sydney and Melbourne remain the prime markets for commercial property investment, the impact of bushfires will be felt in the blaze-hit suburbs. New South Wales experienced massive property destruction with over 2000 homes being gutted in the fire. Victoria was the next in line with 400 houses ruined followed by 151 others in South Australia and 48 more in Queensland.

However, the fires did not affect the metropolitan cities, and the devastation was primarily limited to the suburbs. These regions did not have high-value assets, and the office, retail and industrial segments have also been unharmed as they had a scanty presence in these areas. For the time being, the property prices will plummet in these suburbs and insurance will be expensive.

The improvement in values will depend on the restoration speed and the emphasis on controls that will aid in avoiding climate change that leads to such fires. There are suggestions for building fire-resistant structures and more fire-breaks. If the environment seems conducive to buyers, then the prices will readjust to the earlier rates in the suburbs as well. The demand will rise again as the fire has been controlled, and life is getting back on track. This will also push up the rental prices in these regions. 

 

Conclusion           

A comfortable and convivial environment is a prerequisite for property buyers to make an investment. If the harmful bushfires continue the rampage in the coming years too, then the commercial property for sale in Australia might experience a sustained impact. However, if the measures employed by the government prevail, then the situation can be improved and even enhanced.           

Author Info Sophie Barrett

Sophie Barrett is an experienced real estate marketing professional with a specialisation in commercial property market. She has a Masters degree in marketing from the esteemed Melbourne Business School and has several property management certificates to her credit. Her shrewd marketing policies and business acumen have led to the most rewarding property deals in the major capital cities of Melbourne, Sydney and Perth. She is a popular name in the real estate market and has been serving the industry for almost two decades now. CommercialProperty2Sell is proud to partner with her for some astute discussions and advice on the booming sector.  

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