The short-term outlook for the Global and Australian economies remains highly uncertain, however, high vaccination rates and the easing of restrictions makes the outlook more positive.

That said, lockdowns throughout Australia during 2021 have led the International Monetary Fund (IMF) to downgrade Australia's economic growth in 2021 (from 4.5% in April 2021 to 3.5% in October 2021 outlook) and upgrade the growth outlook in 2022 (from 2.7% to 4.1%) in their World Economic Outlook October 2021.

These short-term revisions will continue to happen throughout the remainder of 2021 and into 2022, as Australia and other nations begin to move into the 'endemic' stage of Covid-19. The good news is that the longer-term GDP outlook for Australia is very positive. Stronger growth is forecast for 2022, before the outlook settles to more longer-term patterns and Australia reverts to being one of the faster growing developed economies in the world.

International borders are key to economic and property prosperity

A key component of Australia's economic outlook is the resumption of international travel and the return of skilled overseas workers and international students. This is a particularly important consideration for the property industry, as a large proportion of growth in the industry, during the decade leading up to 2019, can be attributable to strong levels of international migration.

Not surprisingly, Australia experienced the most severe decline in population growth amongst the worlds advanced economies, with the growth rate plunging from 1.5% in 2019 to just 0.1% in 2021. The IMF and other economic commentators believe Australia's population growth rate won't begin to properly recover until 2023, when Australians become more settled with living with Covid-19, and migrants become more confident to traverse the globe again. Importantly, from 2023 and beyond, the population growth rate looks very strong in comparison to advanced economies, with only New Zealand's growth rate outpacing Australia's from this point.

Structural shift adjustment needed

Overall, it appears that Australia has dealt remarkably well with the economic impacts of Covid-19 and will come out of it in a strong position. All nation's governments have spent billions (sometimes trillions) cushioning the blow of the pandemic on their citizens, so while Australia's government debt will be worse off, following the pandemic, it will not be alone in this regard.

Structural shifts will continue to work through global economies. In the first instance, these will revolve around the changing pattern of work and what this means for cities and CBDs the world over. Expect that some equilibrium here will be met by around the middle of 2023, when lockdowns are a thing of the past and workers begin to settle into a pattern of working both from home and the office. This may mean that growth in office and retail space in CBDs is slower than pre-pandemic levels, but they will still play an important role in our economies.

Retail to benefit from high vaccination rates

The retail sector looks likely to be the biggest beneficiary of a well vaccinated nation and a move into the endemic stage of Covid-19. Australian consumers in NSW, Victoria and the ACT have been forced to become online shoppers as lockdowns and restrictions dragged on. However, following the post-lockdown pattern of late 2020, when online retail sales dropped from 11.0% in November 2020 to 9.1% in December 2020 as shopping centres re-opened, we should expect that the percentage of sales online will drop from the current high proportion of 15.0%, recorded in August 2020, to more normal levels by the end of 2020. What is 'normal' is still to be seen, but the settling of the figure of about 9% throughout last summer is a good indication of the proportion of good that will be bought online going forward.

Office markets need to adjust to working from home

Most major office markets around the country appear to be stabilising in terms of occupancy levels. Notably, there has not been a trend of major corporates vacating large swathes of office space, rather the rise in vacancy, in places like Sydney and Melbourne, has mostly been due to major new buildings completing just as Covid-19 appeared on our shores. It will take time for this space to be worked through, but overall. existing occupiers are maintaining their presence reasonably consistently, and most are grappling with new ways to use their existing space moving forward.

Industrial to continue to outperform

The industrial sector continues to be a beneficiary of the change in consumer behaviour, with warehousing continuing to be in strong demand from retailers and 3PL groups due to rising online retail spending. An accelerating trend that retailers and 3PL groups will need to grapple with moving forward is the rising number of returns from consumers. Warehouse and supply chain consultancy TMX estimates that around 5% of Australia's warehouse space is now used to cater for returned products.

Investment outlook remains strong

Finally, low interest rates are keeping many property investors heavily focused on the solid returns provided by commercial real estate. This has been especially true as investors have become more comfortable with the changing trends that Covid-19 has inflicted on property. Given that rents and occupancy have held up reasonably well (albeit with much higher incentives offered for office space at the moment compared to pre-pandemic), and the longer-term outlook for Australia is especially positive. there are no shortage of both domestic and offshore investors vying for Australian commercial property assets.

This opinion piece was By Mathew Tiller, Head of Research, LJ Hooker Group.