Empty space multiplied by job losses

By Meg Hill

There were roughly 8400 apartments up for rent in Docklands in mid-July, prompting real estate agents to warn that the property market would not return to normal for a long time.

City Residential Real Estate told Docklands News there was roughly 27,000 apartments up for rent in the CBD, Southbank and Docklands combined, according to statistics supplied by realestate.com.

“The numbers are rising pretty steadily by 3000 a month or 500 a week. The normal number would be around 15,000 across the three suburbs, with the apartments included in that number continually rotating,” City Residential managing director Glenn Donnelly said.

“This time last year there were probably 5000 apartments for rent in Docklands.”

Mr Donnelly said there were multiple pandemic-related factors at play. The industry was first hit in March by border closures and the collapse of the short-stay sector.

This continued to be a factor but had been compounded by the impact of job losses and underemployment due to the two lockdowns in Melbourne.

“There’s absolutely a percentage of people who are leaving because of job losses, they can’t afford the rent,” Mr Donnelly said.

“People who were living by themselves might move into a share situation, people are moving back in with their parents, people looking at other options because of the situation of losing their jobs or not being able to travel home.”

Mr Donnelly said rents were continuing to drop as a result, and that the property market would be different for the long-term.

“To get these leased we have to convince the owners to drop their rents, so it stands out,” he said.

“Apartments are leasing out at 25 to 30 per cent less than what they have in the past, probably on average $100 to 150 a week less.”

“I see this as being a long-term thing, even after COVID is finished. If borders open up it would have to be at least 12 months before the market would start to recover,” he said.

“By the number of apartments that are coming on to the market, it’s going to take a long time for those to be filled.”

At the same time, office space in the city sitting idle due to lockdown and working from home arrangements has led to speculation about the commercial property market’s future in suburbs like Docklands, the CBD and Southbank.

NAB announced at the beginning of July that its Docklands offices, at both 700 and 800 Bourke St, would be indefinitely closed.

David Anderson, a property consultant at Nelson Alexander Docklands, said it would be a while before the effects on the commercial market could be properly seen and assessed.

He said this was due to help given to tenants and owner-occupiers through short-term assistance from banks and governments and private arrangements with landlords, as well as the longer leases in the commercial market compared to residential.

“There’s been government directives to enable private negotiations between tenants, owner-occupiers, landlords and banks and that information doesn’t get reported, so it’s hard to measure exactly what is happening,” he said.

“We might not be able to see what’s going on until well after Christmas, once that initial six month period of government direction is up, and that is going to be a bit like what people were foreseeing about job keeper ending – will the government put in further directives? Will the banks extend loans?”

“If there’s a shift to move it all back to normal, pre-pandemic rates, it could hit the industry quite hard.”

Mr Anderson said the effect of moving to work-from-home arrangements would also likely be delayed.

“People are saying we don’t need this level of office space that we’ve had in the past, but commercial leases are generally of a longer nature and you can’t necessarily change mid-stream,” he said.

“Most Docklands leases are on a minimum of three years. It might be 18 months or more before we find out how much people have elected to reduce their office leasing and that’s only going to come out when we have a situation where the majority of people could go back to their office.”•