Reflecting on rent roll trends in 2020 and the outlook for 2021
2020 dealt a lousy hand to plenty of industries – and the property management industry is certainly no exception. If you’re a real estate manager, the pandemic has likely had a significant impact upon the value of your rent roll – and likely a net positive impact if you happened to be in the “right” location.
We’re here to help demystify some of the trends in rent roll evaluation over the last 12 months so that you can appreciate their impact upon your business in 2021.
The vacancy rate polarity
2020 saw a dramatic increase in vacancy rates in CBD markets. With tourism slashed and plenty of city-dwelling workers returning to their family homes or making sea changes, CBD rental properties, once consistently occupied, now lie vacant. This trend was unfortunately compounded by a reduced pool of buyers in the market.
However, the story was much better for regional markets, many of which have correspondingly experienced the lowest vacancy rates they have had for years as people left cities and moved to the regions, driven by job losses, returning from overseas, or intra- and interstate migration. This trend started at the onset of the pandemic and the regional vacancy rates have been steadily reducing since that time.
The good news for both markets is that the headlines are littered with coverage of the record levels of activity returning to the property market. This is seeing both vacancies and buyer drop-offs rebounding strongly as consumer confidence returns and we recover from the worst of COVID-19.
Rental reductions add downward pressure
The elevated CBD vacancy rates of 2020 went hand in hand with a trend of rental reductions, producing less than ideal results for rent roll values. Since the onset of the pandemic, rent reductions increased two-fold as governments and landlords sought to mitigate the impact of the recession upon tenants with precarious employment. Whilst policies of deferred rental payments and abatements provided some relief for tenants doing it tough, they also signalled a major spike in arrears for real estate managers. In turn, the value of rent rolls and regular income flow for real estate managers has been stymied.
Has this trend continued into 2021? So far all the signs are positive for a rebound in the property sector generally. However, rollback of the Government’s JobKeeper payments at the end of March may see higher levels of financial stress returning to the rental market and with it, continued downward pressure on rent and rent roll values.
Additional income nosedives
With reduced letting income, no repairs and maintenance fees and fewer add on commissions from referrals, the bonuses you might’ve come to rely on have likely dried up in the face of the pandemic. The cruel irony of this state of affairs is that while your additional income decreased, your operating costs probably increased.
As we plough further into the new year, don’t be surprised if the introduction of stricter health precautions requires you to continue to organise additional, individual showings rather than hold a general open house and to cover the cost of high-grade cleaning between those showings.
Obtaining funding in a depressed environment
Despite the reduction in demand for rent roll business services over the last 12 months, the industry looks set to rebound. A new breed of specialist and alternative lenders have been quick to capitalise on these opportunities and, like you, are hungry to grow.
As part of a well-considered financial package, ethical lenders will help you to obtain a thorough valuation of your business from specialist valuers at a discount to normal rates. With an independent, expert opinion, you can be assured of the best and most accurate valuation – one that is based on historical trends, aligns with the sales market, and is free from bias. In turn, this allows you to obtain funding on the most favourable terms from lenders who understand your business and what makes you special.
So, while 2020’s rent roll trends might have you rolling in the deep, take comfort in the fact that things are already looking up in 2021 and there is a way to stay afloat until we see a return to normalcy.