The first half of 2020 has unleashed a lot of change in the world, with every industry affected in some way. In the Australian Commercial Property sector, we have witnessed some interesting trends take shape in the Central Coast regional property market. To help give you a clearer picture of what opportunities lie ahead for the second half of 2020, we have summarised the key trends we’ve spotted that we think will define the following 6 months, as we recover from COVID-19.
1. Industrial prices remain strong
At the time of writing this article, we are still seeing great demand from owner-occupiers looking to secure their own space on the Central Coast of New South Wales. Interest from investors also remains strong, with a stable market and growth and continued, historically low interest rates.
Interestingly, as we emerge from the grip of the COVID-19 pandemic in Australia, investor interest has been tipped to increase. As we move further into 2020, the industrial sector will be viewed as more stable than office or retail sectors.
Strength and demand from the owner-occupier market, as well as investor market, will signal good competition for available properties. This should help to underpin value across the sector.
In 2020, land values have improved and continue to grow. This means the cost base for developing your own property is going to increase. However, this will keep strong interest in existing industrial developments, as the cost benefit of buying cheap land to develop is diminished and may be outweighed by the relative convenience of buying already-improved land.
2. Gosford Retail will start to improve
As we move into the second half of a turbulent 2020, we will see some significant steps toward the reshaping of retail in Gosford. While this may not be seen as a defining moment – as redeveloping Gosford CBD will take some time – things are noticeably changing.
One large and welcome change is the development of ‘The Archibald’ site on the corner of Mann Street and Donnison Street in Gosford city centre. This building will remove a long-term vacant retail strip in one of the most prominent parts of our city. This redevelopment will see existing businesses relocating, meaning that other vacancies in Gosford will open up, get filled, and better still – those filled vacancies can get a new lease on life! These changes will all help to revitalise the current streetscape in the Central Coast’s business and commuter hub.
As more development continues, more people will actually live ‘in’ our city. This trend will increase the demand for more retail and entertainment offerings, helping to keep momentum in the cycle of urban recovery.
Shopping centres demanding premium rental rates may also decrease in popularity, as Gosford’s high street shopping strip continues to improve and in turn offer more affordable options for business owners.
3. Office market will likely remain soft
Prior to the COVID-19 pandemic, the office market was already challenging with ample space available broadly across the Central Coast market.
There are a few tiers within the Central Coast office market, with the latest developments representing ‘A Grade’ space (think of the brand new ATO Building and the Finance Building in Gosford). This effectively downgrades some of the slightly older buildings (circa 15-25 years old), to ‘B Grade’ plus even older buildings again (such as those with no thought of disability access), to ‘C Grade’.
New ‘A Grade’ developments have certainly attracted some new business to town. Although that’s great news, they have also become home to several existing local businesses / operators who have relocated from older accommodation. Overall, this trend may represent progress for the Central Coast, but in the interim, with insufficient demand in the office market from tenants, we have a larger amount of vacant office space to contend with.
In reaction to the COVID-19 pandemic, many businesses implemented ‘work from home’ policies. This is a great way to keep people employed and productive, but it may yield consequences to the market that take some time to be fully realised. For instance, we may see larger companies implement a rotating work from home roster, allowing staff to work part-time from home and part-time in the office. The result? Businesses may only need to accommodate 60% of their normal staffing numbers at any given time. Many will have the attractive option to switch to an activity-based working (ABW) format to substantially reduce the amount of office space required.
We may see larger companies diversify their risk by spreading their workforce over multiple locations, rather than have staff aggregated. If one team is impacted (e.g. by coronavirus), and the business is forced to shut down, the business impact would be reduced and they can instantly avoid spreading the virus across the full team. This could actually benefit our Central Coast market if we see core markets, such as Sydney, Parramatta and Newcastle, look to our region as a viable base for part of their team.
4. Industrial development will continue
We’ve seen good activity in industrial property development recently, with many developments under construction right now, but also some speculative local projects on our radar.
Speculative developments are occurring in:
- West Gosford
- and other pockets
Of the developments currently underway, there is a good mix of mini industrial units (circa 30-75sqm), small industrial units (circa 100-250sqm), mid-size industrial units (250-500sqm), and larger industrial strata title units. These developments cater to a broad range within the market.
The appetite for the smaller end of the market remains strong, despite the number of current developments of this style. This style of development has a broad appeal to both investors and owner-occupiers.
For investors, small developments are a great entry point to the industrial market and, in most cases, still offer superior returns than residential investments. For owner-occupiers, they offer a great, affordable opportunity to purchase your own premises, rather than renting.
The growth over the past few years in the industrial unit market has resulted in enough upside and reward for developers to accept the inherent risk associated with property development. This makes industrial property an attractive, and in some cases quite lucrative, segment of the market.
5. Land values will increase
A range of factors are supporting a rise in land values – this includes the increased activity in the development market we already touched on. More demand and competition from developers means upward pressure on values, especially as more vacant sites become developed, leaving fewer land opportunities in the market.
As industrial strata unit values have increased, it has made land more popular. In some cases it has been cheaper to buy land and build, rather than buy an existing property. The result is more demand in the market for land buyers and better rationalisation of the value of unimproved land.
The Sydney industrial market has gone through a boom over the last several years with land values escalating significantly. Naturally, operators are looking to the Central Coast as a viable relocation option given the huge savings on offer here. This only increases the demand in the local market, driving prices up even further.
As the NorthConnex project completes, travel times from the Central Coast to Sydney and vice versa are set to improve. This will provide a more viable alternative for various industries (such as logistics operators), further increasing the popularity of our local market, with the demand from Sydney competing with local demand.
Central Coast commercial property highlights for 2020 in summary:
- Industrial prices remain strong and development will continue
- Still great demand from owner occupiers
- Land values will continue to grow
- Investor interest tipped to increase
- Gosford Retail will start to reshape and improve
- Planned development of ‘The Archibald’ site in Gosford
- Existing businesses relocating will free up other vacancies in Gosford
- More developments means people are living ‘in’ Gosford city
- Increasing demand for retail offerings
- Office market will remain soft