Between lockdowns and recovery stages COVID-19 has presented many new and complex challenges in the real estate sector. While it's been a time of change and uncertainty, it's also been a time of collaboration and innovation as different parties come together to share ideas and solutions in response to the crisis.
The firm has been working closely with real estate clients and industry to navigate the new landscape as the sector starts to bounce back throughout 2021. MinterEllison's National Capital Transactions team – led by Real Estate Partner, Adrian Rich, with lawyers across real estate, corporate, tax and finance teams – has advised on over $2 billion worth of property deals in the past six months, as some of Australia's largest industry players rebalance their portfolios in the new COVID normal.
Adrian Rich said the latest wave of transactions marked the industry's renewed appetite to do deals after a "wait and see" approach in 2020.
"There is a new resolve across the industry to get back to doing deals. However, the nature of transactions is evolving as companies strategically look for new value opportunities and seek to mitigate risk in an unknown market," said Mr Rich.
Increased interest in commercial assets
While industrial assets are hot property right now – the team is also seeing market swings towards traditional asset classes of office and retail with a long-term view on capital returns. After the industrial market hit a high in 2020 and supply tightened, the team is now seeing counter-cyclical local and off-shore interest in commercial assets such as 10 Eagle Street, Brisbane ($285 million), 307 Queen Street, Brisbane ($214 million), Riverview Business Park, Sydney ($115 million) and Allendale Square, Perth ($250 million).
Investments in suburban retail assets
Clients in the sector are taking a more long-term approach to planning as the population faces a dramatic shift with the pivot to working from home. This is playing out with strategic investments in suburban retail assets, such as the recent deals for Bundaberg Shopping Centre ($140 million), Rundle Place Shopping Centre in Adelaide ($210 million) and Marketown East and West in Newcastle ($150.5 million).
Co-owned office building assets
Australia remains a highly attractive destination for international capital, which has seen keen competition across the country.
"Co-owned asset sales are on the rise, particularly when it comes to large, landmark office buildings. The era of the easy transaction is over, but fortune favours the brave and, although they're more complex deals, by taking a percentage equity interest, investors are still able to capitalise on good quality, stable assets while reducing their risk," said Mr Rich.
This has been highlighted in the recent 50% interest sales of the EY Centre at 200 George Street, Sydney ($578.5 million) and 275 George Street, Brisbane ($275 million) – two of the largest single asset disposals since the start of the pandemic.
REITs on the rise
Platform plays are also on the rise with REITs (Real Estate Investment Trusts) becoming more attractive given the dip in the market provide an opportunity to invest in high quality assets whilst distributing risk and diversity returns. Many of our clients are seeking exposure to emerging asset classes such as health, data centres and land lease.
Securing investment grade hospitality assets
As many assumed demand in hospitality assets would decline in the wake of the pandemic, we've seen a shift in the other direction as owners take the opportunity to reduce debt and purchasers look to secure investment grade assets – most notably in the recent acquisition of the Travelodge hotel portfolio ($620 million).
Outlook for rest of 2021
Mr Rich believes that Australia will continue to see an influx of investment.
"We're excited to see what unfolds in the back half of 2021, and into the new year, as this sector continues to deal, invest, develop, finance and re-shape portfolios across all asset classes."
