Economic Turmoil: Threats To Property Growth and Activity

Economic Turmoil: Threats To Property Growth and Activity

Residential and commercial real estate agents, as well as property investors, must understand the risks and threats that could hinder growth and activity.

During highly-volatile economic disruptions, both globally and domestically, there are major and industry-specific threats that could plague the property market, according to a whitepaper report recently published by CreditorWatch chief economist Anneke Thompson.

Due to the current economic conditions, landlords are at an increased risk.

Inflation and cost-of-living pressure will increase together as inflation continues to rise.

Because house prices have fallen, there will likely be a decrease in discretionary consumer spending as well as a decline in construction and residential demand as construction costs rise.

Rates on the rise

Property values in residential areas are immediately affected by rising interest rates.

The commercial impact will take time to manifest, but the impact on business confidence will be immediate.

Less confident businesses tend to put off major decisions or investments related to office moves or investments.

Working from home

Residential property trends have been impacted primarily by the exodus of people from large cities to smaller, more laid-back regions in search of more spacious lifestyles.

The trend toward 10-year leases as well as annual lease increases linked to inflation is increasing among commercial tenants.

Some time may pass before central business districts, which rely heavily on tourists, workers, and international students, recover.

A work-from-home trend would, however, potentially benefit local centres and retail strips.


Housing spending will be more cautious due to inflation, with varying effects across market segments.

Likewise, commercial landlords and retailers will be directly impacted.

Costs of energy

There will be a more substantial impact on the commercial sector due to rising energy costs.

Offices, industrial properties, and retail stores will also be hit by rising energy costs,” she said.

When the annual outgoings budgets are being prepared, energy costs will likely be a major factor.

Vacancies for an extended period

An industry-specific issue for investors is long-term vacancy, especially in commercial properties.

When tenants default or need to vacate, current economic conditions make landlords more susceptible to lengthy periods of vacancy.

It is likely that fewer businesses will be willing to occupy CBD retail space now, especially at current passing rents.

Tenants may face more difficulties due to tight rental supply in the residential sector.

A tighter credit control system

If economic uncertainties persist and major shocks occur, credit controls will also pose a threat.

If the economy continues to worsen, banks may increase their lending hurdles on commercial landlords despite the fact that commercial property is financially much healthier now than it was prior to the GFC.

The changing trends in occupancy

There will be the greatest impact on the office market from occupancy trends, but any changes to the way tenants lease space will have a gradual impact on the market as well.

Providing flexibility in leases will be a big challenge for the industry, as the industry has attracted investors and financiers because of its certainty of income.

Landlords would be exposed to more risk if leases were shorter or break clauses were added.

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