Property investors should be cautious when considering the office sector as it has yet to settle due to changes in working patterns caused by COVID-19, in contrast to the industrial sector, which has boomed since the start of the virus pandemic.
Freehold Investment Management managing director Grant Atchison said the push to return people to the office was faltering and while some businesses were acting as if COVID-19 was over, others were being more cautious.
“On the supply side we see business owners are deferring decisions about leases and re-leasing as they are long-term decisions,” Atchison observed.
“They are also looking at risk management issues such as staff in centralised locations being subject to lockdowns compared with staff in more locations being able to side-step those events.”
As a result of this uncertainty, he revealed net rent figures were being pumped up by landlords offering tenants a ‘face rent’ and incentives, but this could hide lower rental figures.
“If landlords keep the face rent high, it can appear they are gaining high value, but if the incentives to tenants are high as well, then that is just smoke and mirrors and at the moment we are seeing rent and incentives at high levels,” he said.
Atchison pointed out the industrial property sector, on the other hand, is very strong, driven by the growth of logistics and warehousing sparked by online shopping.
“This sector has been the standout winner, driven by the stockpiling and delivery of goods from ‘last-mile’ warehousing, which places distribution centres close to major population centres,” he said.
“It started two to three years ago and really took off in the last year and is being priced at high rates, and there is still improvement in the valuations of these assets.”
According to Atchison the logistics and warehousing side of the industrial property sector crossed over with the retail property sector and was a reflection of the shift in how people were shopping.
“People will still go to look and buy, particularly with non-discretionary items like food, but we are unlikely to move back from online shopping as people have that choice and we are still seeing how far they will go when deciding what to buy online,” he predicted.
Freehold also recently announced it would merge its real estate funds management businesses with financier and multi-strategy investment manager Alceon Group.
The move comes 18 months after Alceon acquired a 40 per cent stake in the the specialist real estate and infrastructure manager and the firms launched a jointly managed fund, the Freehold Debt Income Fund.
The flagship Freehold Australian Property Fund will continue to operate under the Freehold brand and Atchison will take on the role of head of real estate funds management for the combined group.
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