Navigating the stormy seas of the commercial property market
New CreditorWatch paper addresses ways commercial landlords and investors can overcome market challenges and avoid tenant insolvency risks
CreditorWatch, a commercial credit reporting bureau with over 50,000 customers across Australia, today published the ‘Navigating the stormy seas of the commercial property market’ Guide, providing analysis of the current state of the Australian commercial property market, with guidance for commercial landlords and investors to help them navigate key risks including tenant insolvency.
The report outlines the risks associated within the commercial property market for key asset classes including the office, retail, and industrial sectors.
As set out in the report, asset classes within the Australian commercial property sector have experienced varied impacts due to the impacts of the COVID-19 pandemic and the shifting economic landscape. Stay-at-home restrictions have had lingering negative effects on office and retail sectors, whereas the industrial sector experienced boosted demand due to the online retail boom.
Key observations in the report include:
Office
The office sector, especially in Sydney and Melbourne CBDs, faces significant challenges due to increased vacancy rates caused by factors including new completed buildings and changing tenant needs. As remote work becomes more common, with many employees working from home on certain days, physical vacancy rates are higher than official data indicates. This lack of occupancy has broader implications for the commercial property market, affecting CBD retailers and hospitality outlets.
Retail
The retail sector, which had already been adapting to online retailing, was relatively well-prepared for the pandemic's disruptions with shopping centre owners diversifying tenant types and embracing experiential retail. While online shopping surged during the pandemic, it has reverted to pre-COVID levels, and consumers have eagerly returned to physical stores. However, the current challenge in this sector is economic, with interest rate increases affecting consumer spending, particularly in the discretionary homewares sector. Australian consumers are still dining out consistently, but rising costs in labour, food, energy, and interest rates are posing a significant challenge for food and beverage operators.
Industrial
The industrial sector remains robust with strong demand despite a slowdown in online shopping. Rental growth, which initially outperformed other commercial property sectors due to high demand for warehousing and distribution centres during COVID-19, is now receding but still positive, making industrial property highly sought after by commercial property owners.
CreditorWatch’s CEO, Patrick Coghlan, says “Inflation is high and interest rates are 400bps higher in Australia than their historic lows during the pandemic. This is causing business conditions to be extremely challenging for many sectors, in particular food and beverage and construction.”
To help commercial landlords and investors overcome the complex commercial property environment, the report offers insights from industry experts such as CreditorWatch Chief Economist, Anneke Thompson, businessDEPOT Special Counsel, Brendan McGrath, and Jirsch Sutherland Managing Partner – Queensland, Chris Baskerville. They discuss the current state of tax liabilities and industry insolvency risks, as well as strategies to help minimise the impacts of an insolvent tenant, including thorough tenant screening, extensive lease terms, and diversifying tenant mix.
CreditorWatch’s ‘Navigating the stormy seas of the commercial property market’ Guide is now available in full here.
About CreditorWatch
CreditorWatch is a digital credit reporting agency, headquartered in Sydney. From sole traders through to ASX listed companies, more than 50,000 Australian customers avoid high-risk debtors and ensure they get paid on time. CreditorWatch customers can easily search for and monitor the credit history, court actions, payment defaults and insolvency notices associated with any business entity in Australia and New Zealand (including sole traders, trusts and partnerships) giving them an incredibly accurate picture of the risk posed to their business. The company was founded in 2011 and has offices in Sydney, Melbourne and Brisbane. Find out more at www.creditorwatch.com.au
