Pandemic Fight Trumps Office, Retail Struggle: Pallas

Victorian treasurer Tim Pallas has flagged the possibility of a “Covid-normal Christmas” as the state government begins to outline its roadmap to rolling back strict stage-four restrictions and allowing construction workers to return to sites across the state.

Speaking to a Property Council of Australia audience on Thursday, Pallas said the pathway to entering “Covid normal” and in turn allow the state’s economy to reignite hinges on getting the Covid-19 outbreak under control.

Victorian businesses have been under tight restrictions since mid-March, with stage-four restrictions set to continue for at least another fortnight.

The outlined staged reopening will allow for some business and people-movement restrictions to be lifted on 28 September, if Melbourne’s average daily case count falls to between 30 and 50 in the prior fortnight.

“What we will seek to do is populate our projections with hard data as we have a capacity to monitor exactly how we are tracking,” Pallas said.

“There will of course be capacity to adjust at the margins, as we continue to assess any unintended consequences or any areas where we have been too hard on the community or business, without compromising our overall objectives.”

Across the September quarter the state government expects unemployment to hit 11 per cent, while gross state product is expected to fall by $10 billion.

Looking ahead it also projects the state economy will fall by 9 per cent over the 2021 financial year.

Central Melbourne’s office and retail sectors have been particularly hard hit by the pandemic disruption, with thousands of people forced to work from home and 75,000 CBD jobs expected to be shed by the close of the year.

The city’s office vacancy rate has since surged from a historic low of 3.2 per cent in February to 5.8 per cent.

According to Deloitte Access Economics, the commercial tenancy relief code has cost commercial landlords an estimated $6.8 billion from April to September which is estimated to rise to $14.9 billion by March of next year.

When asked about the potential to accelerate the return to the office, in order to offset an anticipated 17 per cent fall in rental revenue, Pallas said the fight to save lives and halt the virus would take precedent, even at an economic cost.

“Tenants and landlords have a shared interest in getting businesses through this pandemic,” Pallas said.

“Without the mandatory code tenants and landlords would still be facing many difficult challenges and in a way the code has formalised a process of engagement.

“While this is an issue of mutual obligation and difficulty being felt across the commercial sector, it is also about trying to strike a balance consistent with the national cabinet framework.”

State government directives to work from home if possible have sent occupancy to as low as 7 per cent across Melbourne city offices, according to figures collated by Property Council of Australia.

Sub-lease availability, which has been at historic lows for the past six years, has also surged by almost 120 per cent in the last six months.

“There will be for some time a lesser requirement for office space across the CBD, both from the private sector and government, as we see more capacity opening up as a consequence of people working from home,” Pallas said.

“I expect it will become an increasing feature of the changed way we work moving forward.

“What that means for the commercial sector over the short-term remains to be seen, but we are monitoring the situation and looking to do what we can to support the industry more generally.”

Pallas also offered hope to residential developers that Victoria would follow the lead of NSW and offer concessions that would make build-to-rent projects more viable as part of a state stimulus package.

“Build-to-rent is becoming an increasingly viable option and we are looking at strategies being rolled out across NSW,” Pallas said.

“While we haven’t any commitments or announcements around the sector yet there is certainly value in it and is something we are looking at as a supportive means to create broader opportunities for the property industry moving forward.”