Retail can soon go the way of empty city office towers, with small businesses facing a “year of reckoning” when the government’s stimulus measures are wound back.
It could trigger a wave of distressed sales in the commercial real estate market, sending values, according to the director of an auditing firm in Sydney.
“We’re already in a recession – it’s just a big dirty patch,” said Leah Oliver of Minnik Chartered Accountants, a company that specializes in small family businesses.
The end of support package – such as JobKeeper, loan relief and deferral of mortgages – will increase the number of properties added to the market later this year, Oliver predicted, as mortgage lenders worry about possible foreclosures.
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“What we expect are dissatisfied sellers, and emergency sales of real estate are disrupting the market,” she said.
“We have not seen any of that yet because stimulus measures have led to people not feeling the pressure to phase out. [their] assets.”
Oliver expected demand for small commercial properties would only continue to decline as work from home became the new norm and companies chose not to renew existing leases.
Office occupancy remains at record low levels in the CBD, with figures revealing an estimated two-thirds of Melbourne offices were empty in January, while the Sydney office was less than half full.
“When some of these leases are not renewed, these investments are much less profitable for any remaining investors who are still willing to invest,” Oliver said. “Most investors want long-term leases signed.”
Her sober predictions about office and retail properties have also become personal. Oliver recently listed for sale the office that the company had had for three years – and where she underwent a major renovation – because her staff all work from home.
“Having an asset there that was empty, it was no idea,” she said.
She said the text was on the wall when it came to a looming downturn in the commercial real estate market, but its severity and duration remained a mystery.
“At the end of the day, it’s pure economy. It is a recession, she said. “But we will pass through it and come out at the other end.”
And the Australian real estate market would remain viable in the long run, Oliver added, as it was considered an overall low risk due to our strong health system.
The financial health and sustainability of small businesses across the country was largely unknown, according to Anne Nalder, CEO of the Small Business Association of Australia.
“Some companies have survived well, probably they have prospered in some areas; many companies barely survive, she said. “Some industries have decimated, and others are okay.”
Nalder said that Treasurer Josh Frydenberg’s comments praising the economic recovery based on the declining number of companies eligible for JobKeeper had not painted the whole picture.
“Many companies were excluded from the system because they had a month that went well,” she said. “To me, there are many absolute unknowns.”
She thought it would take up to six months after JobKeeper quits on March 31 to see the situation for small businesses.
“I think this year will be a tough year, probably tougher than last year.”
“Last year was the year of the unknown, but there was some protection, and all this ends. And this year will be the financial year. ”
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