There has been much written about what a post pandemic recovery looks like and what shape it might take. I’m going to go out on a limb here and say that society isn’t going to look any different. In fact, if you can remember back to 2018 and 2019, maybe 2021 but certainly 2022 should probably look like those two years both in terms of economic and societal shape in many ways. Why?

The first and most obvious similarity should be that we are out of social distancing and social isolation. So, what does that actually mean?

· Working from home is no longer a requirement, it becomes optional. Businesses are more efficient and creative in general terms when staff are located together. The fact we have proven that working from home is possible, does not mean it is optimal five days a week. The majority of dwellings are not set up to be offices, they are homes. That distinction is important not only for economic productivity but also for mental health where home is an escape from work. This is even more relevant where dwelling sizes become more compact. The collapse of the office market is widely overstated in this author’s opinion.

· Retail will continue to reinvent itself just as it has for decades in order to remain relevant to the public. Retailing used to be bound by the agglomeration of tenants, then transitioning into cinemas, to becoming streetscapes under the main roof creating unique food offerings. The experience will continue to unfold, but the death of physical retail is a belief that it isn’t an important part of people’s life. This simply is not true. In fact, walking into large centres that have the majority of their specialty stores closed is not a positive psychological experience. Successful retail centres are an unconscious reminder that everything is okay with the economy.

· Residential will continue to plod along, the rate of sales will plummet through 2020 before slowly improving. Thoughts that people will no longer consider living in an apartment is nonsense. Public space around these medium and higher density dwellings has been used significantly more than in the pre-pandemic era. Town plans haven’t changed as to where and how they want people to live and the major economic centres haven’t moved either. Infrastructure continues to support the inner and near city suburbs, this isn’t going to stop.

· The rate of people moving will in part depend on what happens with our State and National borders. The State borders will open well before those Nationally which means international tourism and education will suffer the longest. Domestic tourism will rebound which should provide a foundation under many regions that can be built upon as the nation works out how to bring tourists back to Australia. Certainly, our low volume of cases and deaths would be seen as a positive for many international travellers that may consider this an important destination value. For more information on this see our recent and original newsletter titled, “The demographics of closed borders” found here http://nprco.com.au/nprco-blog

What has really changed? There has been a pandemic which shut certain industries down but has benefited many other industries. These closures are artificial in nature, not market driven. There is an enormous difference in how this does or does not impact change. Children have been sent home from school, but will return to school. Travel has been lifted from non-essential to now allowing for a slightly greater degree of freedom within 50km’s of one’s address. This will continue to improve. Our mode of travel has become more dependent on the car, not less as the consumer sees public transport as a high risk to personal health. As things return to “normal”, it is possible that congestion will get worse, not better.

People want to return to work. People want the lifestyle they enjoyed in 2019, not the one they have experienced in the early to middle half of 2020. One thing that demographers and sociologists understand is that long-lasting change of any large scale is often slow in its process. Certainly, the rapid response seen throughout 2020 by Australians has been remarkable, but it has been made on the assumption that it is temporary. The collective conscience of the public did not choose this outcome, it was forced upon them. Isolation verse freedom, school verse home schooling, work with colleagues or work from home in isolation, shaking hands verse bumping elbows, sitting at a café enjoying coffee with a friend(s) to take away and no shared experience etc. Australians want what they had, not what they have right now.

The concept of a V shaped recovery is arguably the least likely scenario of any recovery. The simple reason being that whilst the Government pro-actively locked many aspects of society down, the risk attached with an equally fast expansion would likely see a second outbreak of the Covid-19 causing a reversal of many freedoms recently gained. This would lead to a “W” shaped recovery which would prolong the economic downturn, place even greater stress on asset values and force the government to decide on just how much debt really is sustainable.

The reality is that the shape of the recovery in Australia will more likely take on the shape of a tick. It will be gradual in nature and accelerate the further along the nation gets. Gradual unwinding of the changes currently experienced suggests that the impact on our economy will also be gradual and considered. It is highly likely that a solution for safe international travel does not exist yet. It is highly likely that Australia’s labour market will be reviewed and the concept of what defines casual labour is overhauled. Unemployment will spike and unwind as industry gets back to the business of doing business. The stock market will gain ground, it took a decade to reach similar highs after the GFC, but it did make it. The concept of early retirement probably just got pushed further down the road for many people due to circumstances beyond their control.

Whilst these comments remain particularly Australian centric and localised in nature; Australia does not operate in a bubble. The world’s biggest economy being the USA is stumbling under the weight of Covid-19. Much of Europe has shut its doors, told its citizens not to go outdoors and put life on hold until it is safe to re-emerge. China claims to be moving into a post pandemic environment with much of their industry opening its doors. It was the first to go into the forced slow down, it makes sense for it to be one of the first to re-emerge. Fortunately for Australia, at least at this point in time, trade still continues strongly between the two nations. The fact the world has combined donations totalling in the billions to find a solution/vaccine to the Covid 19 virus makes the author think that many other medical break throughs will emerge as well, potentially even a cure for some forms of cancer.

The RBA in its May meeting for the monetary policy stated, “The Australian economy is going through a very difficult period and there is considerable uncertainty about the outlook. Reflecting this uncertainty, the Board considered a range of scenarios at its meeting. In the baseline scenario, output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole. This is followed by a bounce-back of 6 per cent next year.” So there is some room for optimism.

So, what does a Covid-19 recovery look like for real estate? Some downward pressure on asset values, longer times on the market, slower sales rates though 2020 looking to be the bottom of the cycle given what is known today. The recovery will be slow but gaining momentum, it will not be V shaped in profile. Debate will emerge around border control and whether international immigrants make jobs or take jobs. This recovery will be unlike any other the nation has seen, simply because our entry was unlike any other this nation has experience. The lockdown will certainly change people’s perception of how they ‘want’ to live and perhaps have an enduring impact on how people prioritise certain components of their personal life. However, what people ‘want’ to do and how they actually act or function are two different things…

Matthew Gross | Director | mgross@nprco.com.au

Suite 93, 26 Felix Street | BRISBANE | QLD | 4000

What does a Covid-19 recovery look like for real estate?

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