COVID-versary - The pros and cons of the pandemic’s impact on property

Does it feel like a long-time ago, or the blink of an eye, since the COVID pandemic took hold in Australia?
Jason Huljich

Centuria Capital Limited

Monday 20 March marked the three-year anniversary of this black swan event, which has had a lasting effect on our commercial real estate sector… for better or worse.

Arguably, COVID has changed our habits and behaviours. More specifically, it’s generally altered our perspective on our work-life balance, how we shop, how we source our food/groceries and, most poignantly, it’s put into focus our personal healthcare needs. In turn, these changes have impacted investment in office, retail, industrial, agriculture and healthcare real estate.

Following is a summary of the pandemic’s pros and cons for each property sector.


For most, donning trackies and Ugg boots is a dwindling choice for work attire as office-based work has returned as a mainstay, or at least for some of the working week. According to the Property Council of Australia[1], physical occupancy across cross-capital cities has increased to between 46% and 81% with Perth and Adelaide leading the charge (81% and 80% respectively) as of February 2023.

Unsurprisingly, office capital values across this three-year period regressed but don’t tar all markets with the same brush. While Sydney and Melbourne CBD yields have softened 33 basis points (bps) and 37bps respectively, fringe and metropolitan markets have fared comparatively better, with Sydney Fringe yields softening 19bps and Melbourne Fringe holding steady[2].

In fact, 54% of office building transactions between 2020 and 2023 have been within non-CBD markets2.

What drove this resilience? We believe it’s the affordability of office rent. We have seen a high volume of leasing in the fringe markets driving strong net absorption, particularly in the Melbourne Fringe, which recorded over 82,000 sqm in 2022, compared to Melbourne CBD’s negative net absorption of -13,000 sqm2.

With the increase in demand for non-CBD office space, rents have also increased at a higher rate in the fringe – Sydney and Melbourne at 17% and 11%, respectively, compared to their corresponding CBD markets (10% and 4%)2.

The flight to quality theme has gained significant traction. It generally means tenants can get better bang for their buck – larger floorplates, better amenities such as end-of-trip facilities, and better commutability than CBD offices. According to CBRE[3], the main gripe for workers returning to the office is the commute. Commercial buildings based in City fringe or metropolitan markets lend themselves to shorter worker commutes, which in turn, lends itself to a better work-life balance.


Industrial property demand – from tenants and investors alike – has gone on a tear since the pandemic began. This is largely driven by 

  1. an acceleration in e-commerce and 
  2. onshoring supply chains. 

The corresponding behavioural change is that we are shopping online more than ever and we are buying locally sourced products to avoid delays/backlogs from international markets. These changes are driving demand for transport and logistics, warehousing and distribution centres and, therefore, driving demand for both existing and new industrial developments.

For example, if we look at the average industrial land values for a one-hectare site:

  • In Sydney average values more than doubled (126%) to $1,703/sqm[4]
  • In Melbourne average values jumped a whopping 143% to $939/sqm[5]

For existing prime industrial assets, average prime rents across Sydney jumped 35% and Melbourne by 31%[6]. While secondary industrial rents in Sydney expanded 33% and 40% in Melbourne[7]. In short, COVID has turbo-charged the industrial real estate market and supply cannot keep up with demand.


When I say we are shopping online more than ever, there are some non-discretionary items we still buy in the store. For example, we might do a big Woolworths grocery order online but during the week we still need our neighbourhood shopping centre to pick up that extra carton of milk or get a prescription filled or to drop off our dry cleaning. For this reason, Daily Needs Retail (DNR) has remained resilient.

Data from JLL suggests DNR shopping centres’ average capitalisation yields tightened by up to 100 bps between Q1 2020 and Q4 2022[8] while DNR rental values were up an average of 1.5% during the 12 months to December 2022[9].

On the opposite end of the spectrum, we have been renovating and refurbishing our homes intensely during this three-year period, rather than spending our disposable income on travel and hospitality. This has had a positive impact on Large Format Retail (LFR), such as homemaker centres. In fact, these assets benefitted from an average cap rate compression of 75-100bps[10] while LFR rental values were up by an average of 0.8% in the past 12 months to December 20229. These have been the two darling sub-markets within the retail sector.


As mentioned, supply chain issues have impacted the goods we imported during COVID with shipping freight stalling due to quarantine and labour issues. Subsequently, businesses responded by sourcing local goods. This theme also applies to our produce. We want to eat locally grown food.

In fact, demand for Australian-grown fresh food and other quality agricultural products is forecast to increase materially over the next 10 years, driven by middle-class population and income growth in both local and offshore markets[11].

On the real estate front, median agriculture land prices have generally increased between 12.9%[12] and 20%[13] across the nation between 2020 and 2021 (data for 2022 isn’t available, yet). This increase is across all types of farming – from livestock stations to broadacre crops to precision farming within glasshouses or under protective cropping.


Last but not least, let’s take a look at the pandemic’s impact on healthcare real estate. Interestingly, since the onset of COVID there has been a 5.7% increase[14] in private healthcare insurance participation, that is, c.785,600 Australians have taken out private healthcare cover since the onset of COVID. Currently, 14.42 million Australians have private health insurance[15]

With delayed elective surgeries within the public system, it is assumed more Australians have taken up private health cover to have their healthcare needs expediated. This has had a positive impact on private healthcare real estate values.

According to the MSCI Real Estate Index, between the March 2020 quarter and the December 2022 quarter, the annualised total return for the healthcare real estate sector was 15.8%. We see this tailwind continuing with the estimated elective surgery waitlist growing to 99,300 patients in NSW alone, as at the December 2022 quarter, up 4.9% within 12 months and 12.8% in 24 months[16].

So, with a little perspective, we can see the pandemic’s effects on Australia’s real estate sector have been far and wide but largely, changes have generally been positive. Depending on the assets, asset location and asset class, many commercial real estate investments have shown resilience during the pandemic. Nonetheless, with crossed fingers, let’s hope the next black swan event is many moons away.

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[1] Property Council of Australia, Office Occupancy – February 2023

[2] JLL REIS 4Q19, 4Q20, 4Q21, 4Q22 office overview

[3] CBRE Research, December 2022 Live work shop

[4] Source: JLL. Average land values from Q1 2020 To Q4 2022 across all Sydney markets increased from an average $755/sqm to $1,703/sqm.

[5] JLL Average land values from Q1 2020 To Q4 2022 across all Melbourne markets increased from an average $386/sqm to $939/sqm.

[6] JLL: Between Q1 2020 and Q4 2022 – Prime Sydney rents increased an average 35% while Prime Melbourne rents increased an average 31%.

[7] JLL: Between Q1 2020 and Q4 2022 – Secondary Sydney rents increased an average 33% while Melbourne secondary rents increased an average 40%.

[8] JLL’s Australian National Retail Overview and Outlook Q1 2020 shows daily needs retail capital yields ranging between 4.75%-8.25% and the JLL’s Australian National Retail Overview and Outlook Q4 2022 shows daily needs retail capital yields ranging between 4.75%-7.25%.

[9] JLL’s Australian National Retail Overview and Outlook Q4 2022

[10] JLL’s Australian National Retail Overview and Outlook Q1 2020 shows large format retail capital yields ranging between 5.75%-9.00% and the JLL’s Australian National Retail Overview and Outlook Q4 2022 shows large format retail capital yields ranging between 5.00%-8.00%

[11] CSIRO. Growth opportunities for Australian food and agribusiness

[12] Rural Bank, Australian Farmland Values 2021

[13] Rural Bank, Australian Farmland Values 2022

[14] Australian Prudential Regulation Authority Quarterly Private Health Insurance Statistics March 2020 stated as at as at 31 March 2020, 13,634,405 people or 53.2% of the population had some form of general treatment cover. While the Private Healthcare Australia, Media Release dated 1 March 2023 stated 14.42 million Australians (55 percent of the population) now have private health cover. The difference being an extra c.785,600 Australians have private health insurance across this period, a 5.76% increase.

[15] Private Healthcare Australia, Media Release: Australians sign up to private health insurance in record numbers (1 March 2023)

[16] Bureau of Health Information: Healthcare Quarterly October to December 2022

This was issued by Centuria Property Funds Limited (ABN 11 086 553 639, AFSL 231149) and Centuria Property Funds No. 2 Limited (ABN 38 133 363 185, AFSL 340304), wholly owned subsidiaries of Centuria Capital Group (ASX: CNI). The information in this article is general information only and does not take into account the financial circumstances, needs or objectives of any person. Centuria is the responsible entity of a number of listed and unlisted property funds, each of which are issued under a product disclosure statement (PDS) that is available on Centuria’s website for all funds open for investment. An investment in any of Centuria’s property funds carries risks associated with an investment in direct property including the loss of income and capital invested. The risks relating to an investment are detailed in each Fund’s PDS and Centuria strongly recommends that the PDS be downloaded and read before any investment decision is made. Centuria receives fees from investments in its property funds. Past performance is not a reliable indicator of future performance.

3 stocks mentioned

Jason Huljich
Joint CEO
Centuria Capital Limited

Jason Huljich’s 24-year real estate career spans the Australian commercial and industrial real estate sectors. He co-founded Centuria Capital, with Joint CEO, John McBain. Jason collectively oversees $16.8 billion of AUM (as at 23 June 2021) and...


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