The Other Side
The buzz word over the last few years has been ‘disruption’. New businesses that have come into the market and disrupted the entire industry, such as Uber, AirBNB, Amazon, AfterPay, Spotify, F45 Gyms, Purple Bricks (to a lesser extent in Australia), I could go on. However, COVID-19 has blown them all out of the ball park like no other. The entire World has been forced to adjust, unlike the others I have mentioned where the adjustment was yours to choose. Unfortunately many lives have been lost and our sincere condolences go out to those that have experienced the loss of a loved one during this time.
Fortunately our isolation in WA is favouring us and signs are that the partial lockdown that we have been experiencing over the last month or so may well be coming to an end, and the WA economy will be poised to get back to the recovery that we were experiencing early 2020. However on the other side of this, it will be different. Those industries hardest hit, such as hospitality, tourism, travel, food and entertainment will be the slowest to recover, as these require tourists from outside WA to really bounce back. Many businesses and their employees have suffered financially through the crisis, and will take a while to recover. Unemployment will remain high throughout 2020 and into 2021, all of which will cause Retail to endure a slow recovery.
The Office market will recover, albeit slowly as businesses have shed many staff and will be cautious about ramping up too quickly. Whilst there has been talk about employees working from home moving forward, the majority of humans like human interaction, and will want to gravitate back to the office. Companies will see the ~20% saving in office costs outweighed by a much greater reduction in efficiency by having their employees working from home. There will be an increase in vacancy and downward pressure on rents, however not to the same extent as Retail. There will be a decreased appetite for shared offices.
However there will be winners on the other side. The Industrial market, whilst taking a pause due to a slowdown in the global supply chains, will be reinvigorated by new investment in local manufacturing. The beneficiary of this will be Government investment in pharmaceutical and medical supplies manufacturing, so Australia can be independent and not rely on China and others. This will come with a premium, a premium the market will tolerate. Industrial and Logistics, Health Care, and major food groups will come out of this in a much stronger position. Online retail sales will grow which will drive further demand for warehouse space all over the country.
Residential property will no doubt take a hit as net migration comes to a grinding halt. Sales of houses and apartments that are under construction will slow up as a result of this, and supply will take some time to work through given fewer people will be migrating to Australia. Having said that, ‘on the other side’, and given Australia’s somewhat exceptional handling of COVID-19, this may well place Australia at the forefront of people’s minds looking to migrate elsewhere. Australia’s free healthcare system, our isolation, and our quick recovery from COVID-19 may well place us as the most appealing destination.
Will there be a downturn, yes of course. However the government stimulus of over $200b and growing will cushion the blow. The IMF has forecast the global economy to contract in 2020 by 3%, with 6% growth in 2021, with Australia contracting 6.7% this year with a recovery in 2021 of 6.1%, so we are looking at a V type recovery. The weak $AUD against the $US is certainly going to help our export market. Iron ore is trading at strong levels and the miners are well placed to undertake further exploration, which will only assist WA getting back on track.
All in all, WA is well placed on the other side of this to bounce back quite strongly in 2021 and beyond. Our isolation has favoured the State. Keep up the great work and we at SVN look forward to working with you all in the coming months and on the other side of this.