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Commercial property activity steps back amid COVID

Senior Economists, ANZ

Published September 22, 2021

Ongoing uncertainty about the way businesses and households will operate once lockdowns ease appears to be hampering non-residential building development plans.

According to ANZ Research’s latest Australian Major Projects report, commercial building approvals are well down on pre-pandemic levels, and work yet to be done has been trending down over the past year across retail, offices and hotels. Retail work yet to be done is at its lowest point since 2006, while short-term accommodation work yet to be done is at a five-year low.

The report looks at the investment pipeline for projects $A100 million or above, across key infrastructure and commercial property sectors.

According to the report, the ongoing popularity of working from home, even outside lockdowns, and a permanently higher share of online retailing could push some economic activity out of CBDs and weaken the relationships between employment, incomes and commercial property demand. 


While overall commercial property confidence has continued to improve from its mid-2020 lows, the latest ANZ-Property Council of Australia (PCA) survey showed office confidence was still below pre-pandemic levels, even before recent lockdowns intensified.

Although most survey respondents believe tourism property is the most affected by COVID-19 restrictions, a growing share of respondents in the latest survey consider offices the most impacted. Retail property confidence is above its 2019 level, but the outlook for prices and construction activity remains negative.

While structural changes brought on by the pandemic are still evolving, the economic outlook is unlikely to be a headwind for commercial property investment. The economy is expected to recover quickly from lockdown, and rising capex expectations signal that businesses are still pretty positive about the outlook.


While employment growth has been strong – always a positive for the office market – uncertainty over the permanence of work-from-home arrangements will continue to weigh on the sector. Nevertheless, the potential pipeline of major office projects is pretty robust, particularly when compared with retail and hotels.

Lockdowns across NSW and Victoria are entrenching work-from-home setups across a wide range of businesses and sectors and the latest PCA survey on office occupancy shows, even in cities where case numbers have been low (or zero) throughout the pandemic, the occupancy rate of CBD offices has remained below pre-pandemic rates – well below for some cities.

Workers and businesses alike are preparing for remote working. ANZ-PCA and ABS survey data show lower occupancy is underpinned by employee preferences for working remotely.

While the popularity of remote working is likely to persist, offices still play an important role, with most workers likely to spend at least part of their working week in the office. This is evident in the number of developments approved and commenced since the February Major Projects report.

A common factor across many of these projects is they have secured an institutional business as the anchor tenant, providing developers with some assurance of tenancy. Office activity could be more resilient over the next few years than structural trends would suggest.


The retail sector has been resilient throughout the pandemic. However, this hasn’t led to a lift in demand for retail space. Vacancy rates in retail centres rose through 2020, particularly in CBD retail strips.

The rise of remote working has pushed more economic activity and retail spending out from the city, and into suburbs and homes.

Some retail property in suburbs and regional areas has benefitted from the increase in remote working. Workers who would usually shop in the CBD are more likely to make purchases from suburban centres while working from home. But the switch to more remote working also pushed more retail sales out of bricks and mortar altogether.

Like remote working, some of the movement of retail online is here to stay. ANZ card-spending data suggest online channels captured 37 per cent of non-food retailing in August 2021. Even before the current lockdowns, the rate of online shopping (for non-food retailing) was far higher than the pre-pandemic rate.

ANZ-PCA data show the outlook for capital values and construction activity in the retail sector remains negative, as a movement towards online retailing weakens the relationship between retail sales and property demand.

Some major retail developments have been delayed, and there is a risk of some developments not going ahead, particularly in inner-city areas and employment hubs.


Delta variant outbreaks across NSW, Victoria and the ACT have put much of Australia’s interstate travel at risk for the remainder of 2021, while the outlook for international borders remains uncertain.

 The latest ANZ-PCA survey results show far more respondents consistently view hotel and tourism property as more impacted by COVID than other commercial property types.

Regional accommodation providers are far more resilient to pandemic impacts compared to metro area properties. In the time between lockdowns ending and international borders reopening, ANZ Research expects regional accommodation demand to rebound quickly.

Major city hotels, particularly in CBDs, are not likely to see demand near pre-pandemic levels once lockdowns end. City hotels are more likely than other accommodation providers to rely on business travel, which could be permanently impacted by the movement of business operations online. As more businesses become accustomed to online meetings, the demand and budget for business travel may be permanently lower.

Major city hotels are also more exposed to the international tourism market, which is likely to return more slowly than domestic travel. This puts the demand for major city hotels – particularly in CBDs – at risk for longer than other property types.

The eventual reopening of international borders will help major city hotels and regional destinations that attract international travellers, but any additional processes incoming travellers need to undergo to maintain COVID safety may slow down the return of international travel.

Adelaide Timbrell and Catherine Birch are Senior Economists at ANZ

This story is an edited excerpt from the Australian Major Projects September 2021 Report, published September 16 2021. Click HERE to read the full document. 

Commercial property activity steps back amid COVID
Adelaide Timbrell & Catherine Birch
Senior Economists, ANZ

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