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The First Signs of 2021 and The New Normal

1. Market perception optimism prevails …

What a great start to 2021, in simple terms, probably the best start in the last five (5) years. A steady flow of both commercial and residential transaction property participants from real estate agents, developers, owner occupiers and private investors alike, all striving to abandon the Covid-19 syndrome and participate in a steady and buoyant real estate market. There is definitely a sense of “Let’s forget the last twelve (12) months and let’s make sure 2021 is a good year”. Simply, the earliest and best start to a calendar year in real estate for a long time.

2. Residential market has bounced …

In most areas of Melbourne, we are already witnessing an above average level of demand, under supply of stock and in a lot of areas with considered above average prices in comparison to the last eighteen (18) month period. Owner occupiers within this segment, as typified by most media sources, are taking advantage of low interest rates, Government rebates and simply, “I have money and I want to take advantage of the current offerings”.

3. Commercial market static with some signs that could be worrying …

It doesn’t matter which type of property within this asset class, demand is static and a “wait and see” mentality is already in place. 

Obviously, the key driver being the disconnect between current passing and market rentals, coupled with perhaps too high expectations of rental levels pre-Covid-19.  Variance on rental levels is a worrying sign that will continue for the short to medium term.  Again, it is well documented that yields are, in general, consistently falling and are considered in line or provide some degree of correlation as to interest rate reduction.

I am hopeful that at the very least, the market will continue at its current level, with a steady and consistent level of value being maintained.  

4. Building costs and shortages of materials …

The one sure thing is that building costs over all sectors are gradually increasing and I personally feel that further increases will continue.  If you drive around the Melbourne Metropolitan area as I do, you will see that all commercial development sites are active.  There is rightly so, a sense of urgency to complete.

From the residential sector, moreso prestige sub-market, I am led to believe that some materials are difficult to obtain with goods not available or behind in production.

5. Market forces of supply and demand …

Simply, the best commencement of the calendar year for many a year. A balance prevails as to supply and demand, especially within the owner occupier residential dwelling sub-market.

Prestige and medium level residences are even considered in under-supply. This further providing an underpinning of value and, as previously stated, above average pricing.

Industrial property at this early time is the standout sector of commercial real estate, with the old adage “why rent when I can own” coming back into play.

At this early stage, positive shoots are evident within all sectors of the market.

As we all are hoping, 2021 promises to be a year of positive optimism.