Where Is Commercial Property And Construction Heading In 2021?

Few industries have been hit in 2020 as hard as the property industry. That is no more true than with commercial property and construction.

At the beginning of 2020, commercial property was in high demand. Malls were getting more crowded by the day, and many big corporations were constructing interesting offices to carry out basic work functions as well as for interacting with customers. Then COVID-19 hit.

Temporarily shutting down malls, offices, and other commercial buildings would have hurt the industry, but it could have rebounded. However, the longer lockdowns continued, the clearer it became that many commercial buildings were not only virus hotspots, but obsolete. People started shopping online more than ever. Employees worked from home.

This was all well and good when we needed to do things remotely, but it taught us that many outings need not happen at all. Even people who were technophobic or otherwise resistant to online solutions had no choice but to adapt, and discovered that change wasn’t all that bad.

Plummeting property values

Most property values fell in Australia in 2020. The housing and rental market lost the spending power of international travellers. People who wanted to move locally had few opportunities to view properties in person. With a struggling economy and rising unemployment, many potential buyers no longer have the money or credit to spend (and are much deeper in debt than ever before). But while private property values fell, they did better than most experts predicted.

When it comes to commercial property, buildings that were completed at the end of 2019 or in early 2020 never had the chance to get off the ground. Construction debts that would have been covered by patronage in any normal year were the downfall of potentially successful Aussie businesses.

With commercial buildings standing empty, property values plummeted. The same was true for construction. For commercial construction companies, clients were suddenly few and far between. They had to cut their losses and drop their own prices, in a struggle just to stay afloat. While Australian commercial property values have survived better than anyone expected, the losses have still been significant, and the potential for further damage is still very real, depending on whether or not Australians can go back to normal.

The question we are left with is where commercial property and construction is heading in 2021. Will it make a recovery or will people prefer to continue doing business online? Either way, is it worth investing in commercial property now that prices are at a low?

Will the vaccine save commercial property?

One of the biggest stories over the past month has been the successful testing of preventative COVID-19 vaccinations. It has buoyed the markets and left people around the world optimistic that things will go back to normal in the near future. It will take some time for the vaccines to be rolled out, but once that happens, social distancing measures should be a thing of the past.

But that is no guarantee that commercial property will be saved. As we’ve mentioned, people have gotten used to doing things online, but the question goes beyond that. Everyone is a lot more hygiene conscious now. Whereas in the past, no one thought twice about spending time in crowded environments, the idea brings up a lot of anxiety today.

The question is particularly poignant when it comes to malls. Malls have traditionally been guaranteed money-makers if done right. Not only do people shop there, but they serve as a meeting place for groups of friends, and famous malls have even become tourist destinations.

The problem is that crowded malls are perfect environments for viruses to spread. Without a vaccine, they present a real danger. With a vaccine, people might still be hesitant to return to these potential hotspots.

Is there any way to know whether malls will ever be as popular again?

Malls and a return to normalcy

The reality is that we only need to speculate so far. After the initial social distancing measures were lifted throughout Australia, malls rebounded immediately. It had only been a couple of months at that point, and people were already eager to get back into the outside world.

Over the following months, there has been a mixture of COVID hygiene fatigue and a new normal. Some of the stricter guidelines are now almost universally ignored (few people are still sanitizing their groceries), other regulations have become de rigueur. In the same way, you probably wash your hands properly now without thinking about it, you may well feel uncomfortable in close proximity to strangers.

That said, people are returning to malls and public spaces. This is true not just in Australia but in countries that have been somewhat successful in containing COVID after a massive wave, like South Africa. In spite of fears of a second wave, and months of getting used to staying at home, malls, and restaurants are starting to fill up, albeit with social distancing measures in place.

It is difficult to make any accurate predictions when it comes to COVID, but people do adapt very quickly. It now feels normal to wear masks, and once the vaccines have been widely distributed, we will quickly get used to going maskless.

Should you invest in commercial property as 2020 comes to an end?

This begs the question: since commercial property and construction values are yet to recover fully, and we will likely see a return to normal sooner rather than later, is this the perfect time to invest?

The answer depends on a number of factors which are mostly linked to who you are and how you do business. An appetite for risk is one character trait you’ll need. Another, perhaps more important trait, is the ability to adapt. The world is different now, and if your idea has stayed the same since pre-COVID days, you are probably in for a tough time.

For the past couple of decades, the biggest success stories have been people who saw change coming and took advantage of that foresight. In 2020, that has been the blueprint just for those hoping to survive.

If that doesn’t describe you, a real estate investment trust (REIT) might be a workable approach. With a REIT, you are neither solely responsible for the risk nor wholly accountable for success. Sometimes, you need partners who have different kinds of insight to your own.

The next question to ask is whether you’ll be able to finance construction at a reasonable price.

Commercial construction loans in Australia

Commercial construction loans in Australia are loans that are generally taken on a term of about a year. They cover all the building expenses, using the property as security.

Applying for a commercial construction loan in Australia as 2020 draws to a close is as attractive a prospect as any. In addition to the bargains you are getting for your commercial property, you will be able to finance your construction with better interest rates and terms than you would at any other time.

COVID-19 has been tough on the financial sector as a whole. While the recession did not last very long, its severity meant that we will continue to see its consequences for a while. Banks and lenders are still trying to make up for lost income, including many long term loans. That lost business will affect the institutions for the next few years.

For this reason, banks and lenders are making it easier for individuals and businesses to get loans. They are providing incredible interest rates, in addition to the low rates the substantial security of your property gets you.

Construction companies may also be able to offer good value for money. They have struggled throughout this year, and they will go far to secure a major project. This is not to say that they will work for exploitative pay, but they will find ways to charge lower rates without harming the quality of their work.

The verdict

Commercial property construction in 2021 may be a good investment. COVID-19 has made a lot of people more comfortable with doing business and shopping online, but that does not mean they do not prefer doing so in person. As we get back to normal, people will want to start living like they did before the pandemic.

Property values are down, and banks are looking to give loans, which makes this the perfect opportunity for commercial construction – if you have the appetite for risk and the necessary vision. Consider getting a commercial construction loan to finance your idea. With bargains like none you’ve seen before, you stand to make good money.