Inspire & Inform Show – Episode 22

In E22 of the Inspire & Inform Show, Colin discusses trends in both commercial and residential property for 2020 and beyond.

Please see below for the full transcript of this video

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Transcript:

Unknown Speaker 0:01
Hello, and welcome to Episode 22 of Inspire and inform. My name is Colin Lee and I’m the founder of Inspire Realty. Today I was thinking about some of my clients who I managed their property portfolio, I manage a number of high net worth clients. And they do own a number of properties, residential properties, but as a number of them that also own a number of commercial and retail properties. So as I was thinking about them today, and for the last couple of weeks, I really want to just share with you some of the things that I’ve noticed in the marketplace, certainly something that I’ve been been hearing a lot from tenants, and also from a lot of my buyers as well, I work in the city, My office is in the city. So I physically get to see what happens in a city from a week to week basis. Anyway, my aim with this Inspire & Inform series is to help educate and provide you as an investor, the necessary tools to make informed decisions about your property investments.

Unknown Speaker 1:07
So I’ve been investing in property for over 10 years. And since then, I’ve built a multi million dollar property portfolio all across Australia, I’m a migrant and been here for 20 years myself from Malaysia, I know that if I can do it, you can do it too, you don’t have to be a genius to do it. It’s my belief that no matter where you are, what state you are in your life, if you have a will and a desire, you can make it work.

Unknown Speaker 1:32
So what I wanted to cover today is just a few pointers, I’ve been reading about, you know, the absorption rate or the vacancy rate with commercial properties. And I just want to draw a little bit of a comparison with that with residential properties. And you can see that there’s starting to become quite a trend with what’s happening with the two different marketplaces. Mainly because I get asked a lot, you know, whenever my investors reach a certain size of residential property portfolio, invariably you start to think of high yield properties, including commercial properties. And I just wanted to share with you some of the trends I’m looking at. So then, as an investor, you can decide for yourself whether you think commercial, and an office space, or retail space would be the next, you know, will be an opportunity for you. I’m still waiting and seeing but some some early results have shown what’s happening.

Unknown Speaker 2:29
So JLL, which is a JLL research, they’re also a property company has released quarter two 2020 results, the statistics on national office markets. And what is shown is a negative absorption rate of 147,600 square meters of office space. So when it’s a negative absorption, it means 147,000 area square meters of property, commercial property has come onto the market. I certainly know of a number of my of my clients who have commercial properties, some of them have got their properties. And it’s been vacant for a little while, trying to lease it out or sublease it out at the very least. And it’s been a real challenge.

Unknown Speaker 3:19
So I think that’s just showing a bit of a trend in what’s happening. I wouldn’t mind just sharing my screen and kind of giving you a bit of an idea of, you know, what the absorption rate is. So, hope you can see this.

Unknown Speaker 3:33
This is really looking at a six year sort of market net absorption rate specifically for commercial properties. In 2014, things were looking, you know, okay. And then 2015, it had absorbed a lot of the properties. And so it was looking really, really good. It was all positive 2016 it was positive, and then 6/17 it dropped a little bit, early 18 it fell and in the first quarter, but it just picked up in terms of the second, third and fourth quarter 2019 it really just plummeted. And then it started to pick up again in the first couple of quarters in 2020. That’s pre COVID. And as soon as COVID hit as you can see, it’s it’s been negative absorption rate. We’re looking at nearly 150,000 square meters that’s been made available in the marketplace at the moment. So that’s very scary statistic. And my guesstimate would be that it would continue on this trend for a little while, until such a time when people start to return to office. Obviously organizations and companies will also need to ensure that they are taking up the space. So it would largely depend on how the economy you know picks up.

Unknown Speaker 4:50
The national CBD office market vacancy rate has increased by 1.8% in total from 8.4% to 10.2% so national average is sitting at 10.2% in second quarter of 2020. Just going to go through some of the capital cities.

Unknown Speaker 5:07
Sydney at the moment is recorded at 66,000 square meter net absorption rate negative absorption rate over the quarter, and that’s increased the vacancy rate to about 7.5. Still below the national average, Brisbane CBD is recorded minus 15,700. So it’s not too bad. The thing about Brisbane though the vacancy rate has increased by 0.7%. But it is sitting at 12.8% vacancy over the quarter. So that’s pretty high, it’s well and truly over 10% Perth has been struggling for a while, they have recorded at minus 10,500 square meters of net absorption over the quarter negative absorption. And as a result Perth CBD vacancy rates moved up to 20.1% in second quarter 2020, Adelaide CBD recorded minus 4400 square meters in second quarter 2020. But a positive net absorption of 15,300 square meters over 2019/2020 financial year. So it has increased, but the vacancy rate is still sitting at about 14.7% over the quarter. So And last but not least, Melbourne, Melbourne has recorded not too bad in the second quarter but minus 42,300 square meters of net absorption over the second quarter of 2020. And therefore rise raising the vacancy rate to 7.7% in second quarter.

Unknown Speaker 6:35
So what am I seeing? I I’m seeing a trend the moment I’m seeing that, and I certainly am doing it myself, I’m working from home two days, three days a week, and maybe going into the office two days a week, progressively starting to go into the city more where my office is just because it’s where I meet clients. I was in the office today. But I came back early to do this presentation in my home studio. So I walk around the city very frequently. And I and I still see that the city is fairly quiet. And a lot of my colleagues and friends, a lot of them are working from home. So it’s funny, you know, because our local cafe here is really starting to pick up in business. Whereas the whereas the CBD cafes are starting to pick up, but certainly nowhere close to where it used to be.

Unknown Speaker 7:26
I manage one of my clients, retail sort of coffee shop that he owns. And you can see a significant drop in income on a month to month basis. But it’s starting to pick up in variably they haven’t done what they used to do yet. So I think it’s still got a bit of where to go.

Unknown Speaker 7:44
The working from home experience has been positive generally for a lot of people. You know, I think people are starting to see that the office re entry. When it does happen. It’s going to get it’s going to it’s going to be a good balance. And I think people employees generally would want to try and negotiate for working from home arrangements. Seeing that it’s the you know, it’s starting to become a norm. And I think it’ll be accepted within companies and organizations in the marketplace.

Unknown Speaker 8:15
So look, the trajectory of Australia’s economy will really determine the employment outlook and the demand for office space. I guess I’m already seeing a number of companies downsizing, and starting to lease or sublease their properties into the marketplace. It is a little bit hard for the market to take up all that stock, but hopefully we’ll start to see it increase.

Unknown Speaker 8:39
What I do want to show though, which is not surprising, I suppose are some early market indicators, particularly for the residential space. And I think it’s worth having a look at that.

Unknown Speaker 8:53
So there we go. This is hot off the press literally out 10 days ago. And you can see that as of the 18th of October 2020. What I what what REA has done is they’ve looked at the comparison between 19 and 20. So I think that’s a good yardstick. It’s a good measurement of how residential properties are faring invariably 2020 you could see a visible drop in the marketplace. All months considering up until March has been fairly similar. But as soon as we hit March end of March ish, we can see a significant drop to April and then towards mid of April we can see that 2020 has started to pick up this is just pre listing. So properties that are listing in real estate and domain whereas 2019 has been a slight decrease. And then for some reason the month of May and at a significant drop. But then what happened in June and July and subsequent months up until now. You can see the market has stabilized.

Unknown Speaker 10:00
So it hasn’t really been too different to what’s happened in 2019, which tells me that residential properties have really stood the test of time, it’s really been very, very solid in terms of, you know, the performance. And, and we can see just from the pre listing activity, that it’s been fairly stable over the last four or five months. So that’s been very, very positive 2020, you can start to see that it started to pick up. But obviously, in the whole year, comparatively, it’s gone down in pre listing activity. Another really good indicator to me whether, you know, residential property is going well, is looking at how many advertised properties are there for rent, and for sale.

Unknown Speaker 10:45
So if you look at this graph, the Orange Is The rent line. And then the blue line is the for sale, advertised properties. So you can see that it’s, it’s, again, you know, it’s very visible that both rental and properties for sale dropped in the month, leading up to April, and then it picked up as soon as you know, things were getting a bit better. And, and then it just plateaued. So you can see that it’s plateaued. And so the week on week has increased a month and month has increased. And, and so we can start to see that, you know, it’s normalizing itself, certainly from a rental and sale perspective for the last, you know, six or seven months, since April May has has hit the marketplace.

Unknown Speaker 11:39
Now, one of the other, I guess, indicators is looking at mortgage activity as well. Looking at 2020 versus 2019. Once again, you can see 2020 had had a visible drop compared to the last year but not forgetting that in February 2020 had significantly picked up the number of mortgage activity leading up until April before it just kind of dove but then it picked up and it’s really plateaued compared to 2019. There hasn’t been a lot of change. But what we’re seeing in the last month, and I’m certainly experiencing myself as a finance broker, I’m helping a lot of my clients doing their finance, refinance pre approval, helping a lot of homebuyers. I’ve literally just refinance for one of my clients and the property has settled. And they are starting to save quite a lot of money on a month to month basis. There are a lot of banks and lenders are starting to offer some really good incentives for you to refinance and cash rate has been the lowest that it has ever been. So it’s a really good time to look at refinancing if you are in the position to. So feel free to reach out to me if you’re looking at refinancing, but also, more importantly, looking at your overall strategy in property and how I can best assist you in that.

Unknown Speaker 12:54
So it’s gone up, you know, year on year, it’s gone up by 6.73%. So I hope you can see that residential property has been incredibly robust during covid era. And and I can certainly see that, you know, remaining strong for the next quarter. Nothing too much about this. But you can see that refinance, understandably, has been the largest activity for loan purposes, sitting at 63.03%. That’s over 60% of the loans and mortgage activity going into refinance. And I think it’s a really good idea to refinance at the moment, you know, the rates, on average, if you’re not refinancing will be sitting around 3% or 3 to 3.5%. And I can certainly get rates from two to 2.1 2.9% in the marketplace at the moment. So it’s worth having a look and having a chat with myself as a broker. If you want to reach out, please visit www.inspirerealty.com or give us a call on 1800 88 4663 So hey, I thank you so much for your time. If you’re interested in finding out more, please visit our website. I hope this has been inspiring but also informative for you. Thank you so much, and have a good night. Bye for now.