The team at Cushman & Wakefield Valuation and Advisory have pleasure in providing analysis of key 2020 transactions across the Sydney (CBD and Metro), Melbourne, Brisbane and Perth institutional commercial markets.
When it was clear that the COVID situation had evolved to “lockdown” status as at the end of March 2020, we released a paper to select clients (titled “An Evolving Situation, But Where are We Now”- COVID-19 end of March 2020) in order to assist with some early guidance on matters we considered to be of relevance in the early stages of the crisis. This paper related to the commercial market.
In March 2020 we noted:
We cannot look “thru-the curve” to gauge the duration of the current dislocation until the market can reasonably forecast the other side. Is that 3, 6, 12 or more months away?
Therefore, it is important not to react too early in a material way at this stage when impacts are still being gauged. Cushman & Wakefield Valuations is of the view that it is important not to act “definitively via subjective speculation” (March 2020).
Importantly, with this in mind and in the absence of transactional evidence at that point in time, it was also important to take a more forward looking view on where the market may trend and how these views would impact upon our point in time thinking. This involved stress testing many income variables that were clearly under stress (ie. incentives, downtime, rental growth). It was also important to take a view on expected capital market trends in order to form a view as to whether we should be adjusting return metrics. Dislocation, costs of capital and illiquidity were considered. We noted at the time:
This apparent illiquidity is not yet driven by critical debt/equity allocation dislocation
alone (like the GFC), thereby presenting rebound prospects should the “caseload curve” (infection rates) flatten in the shorter term. In the absence of sales, there is no rationale to adjust returns on this premise alone. This remains a watch and act consideration. (March 2020)
