Welcome to this week’s Property News.
With Sydney heading into its 5th week of lock down, the pressure on the State & Federal Governments to enhance the economic support packages is increasing as more businesses face a more challenging setting without the JobKeeper program which assisted business in retaining key staff. Whilst support is available for businesses and people facing significant declines in work, many are worried that it won’t be enough to keep business afloat.
In Sydney there is little hope of the lockdown ending anytime soon with daily transmissions rates remaining stubbornly above 100 cases, often with more than half still moving about in the community whilst infectious. Pleasingly, the testing rates are at record numbers.
Our expectation is that the Federal & State Governments will be required to enhance the support packages with further benefits for business and families with a Job Keeper 2.0 style program. With a Federal election in early 2022, the Federal Government is unlikely to dis-enfranchise the 13.5million people currently in lock down and send large numbers of businesses into receivership or the whole country into recession. We also expect that when vaccinations reach 50%-60% (and the need for lock downs dissipates) the Government will unleash a re-election spending program.
Whilst we expect conditions will bounce back once the lockdown eases, we still hold to our preferred investment strategies ie We favour investment or development property underpinned by long term secure tenants who rely on non-discretionary consumer expenditure. These include neighbourhood convenience retail, medical & health facilities, education and child care services, fuel & automotive services.
In other property news, the move by Dexus to invest $339m in the acquisition of Capital Square in Perth is big news for the market as the CBD continues to struggle its way out of a high vacancy period. According to Knight Frank’s latest Perth report, the overall vacancy rate rose from 18.4% in July 2020 to 20.0% in January 2021 largely driven by an increase in vacancy in the A grade segment, while the premium grade vacancy rate remained stable at 6.8%. Average prime incentives have increased to 46%-50% and effective rents fell by 14% in 2020, with face rents remaining relatively stable.
Demand for office space is picking up but larger deals remain fairly limited as tenants assess space requirements. Net absorption fell by 32,991 sqm over the six months to January 2021 driven mostly a decline in the A grade segment.
The Capital Square property is a premium building and fully leased with a WALE of 12 years. Whilst the income credential are solid, the capital value of the property will be challenged until the office demand picks up.
If you have any news, information or research reports you’d like us to share with the market, please feel free to send me an email at info@propertymarkets.news.
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