_Your partners in property – Demi Carigliano and Anthony Pirrottina
What does your role entail?
DC: As a Senior Executive in the New South Wales Investment Sales team, my main focus is selling commercial assets that are either investment, development sites or value-add opportunities within the South, East and Inner West of Metropolitan Sydney.
AP: Demi and I work closely together, so similarly my role entails the sale of commercial investments and development sites in the $3 - 20 million range within Inner West and Southern Sydney. Our clients are predominantly private high net worth investors and privately-operated development businesses.
How has COVID-19 impacted your working life?
DC: With the pandemic in full force, we have adjusted our approach with vendors and purchasers through building relationships and advising them to a strategic sale. Working from home has presented us with difficulties surrounding inspections, meetings or pitching with clients, however given we were able to adapt to change quickly we managed to still sell two assets mid-lockdown.
AP: COVID-19 has very much resulted in a shift in our role away from marketing agents towards being strategic advisors who assist to add value for clients. The adjustment away from in-person meetings and towards working from home took some getting used to, but I think it has opened our eyes to the fact that agency can be done in a much more flexible environment than the traditional office workplace.
What is the market sentiment as we emerge from lockdown?
DC: We deal with a broad range of buyers on a daily basis, from developers to commercial investors and owner occupiers. The general sentiment changes by the week; one week we are faced with people sitting and waiting to ‘see what happens’ and the week after we are faced with other groups racing to find an opportunity off- or on-market. The sentiment is mixed across the board; however, buyers are more cautious in purchasing assets. The local purchasers are definitely stronger currently than foreign groups.
AP: The sentiment and consensus within the private market is that this has been a break and cooling in the commercial market that was needed. Whilst the trigger of a global pandemic came from out of the blue, the property cycle, and in particular residential development sites, had been on such a long run of growth that this lockdown period has allowed prices to normalise and groups who have struggled to purchase over the past two to three years have had the opportunity to re-enter the market.
What is happening with your existing clients? What business are you doing today?
DC: Our existing clients from a purchaser point of view have become cautious in what they are using their cash for. Banks and lending institutions are not making it any easier to borrow and in turn purchasers are limited with how many opportunities they can acquire. Some of these groups are usually purchasing up to three assets at a time, now they are limited to just one. However, purchasers still remain positive and are continuing as per usual as they feel there is light at the end of the tunnel.
AP: Our existing clients remain optimistic and believe that this period of uncertainty will pass. Fundamentally access to capital remains strong, cost of debt is at an all-time low, and clients are positioning themselves to survive in the interim by shoring up their finances, with the view to thriving on the back of Government led stimulus in a post-COVID economy.
At the moment we are working with a number of our close clients to provide advice and identify the properties which are less core to their strategy moving forward so that those properties can be sold in the short term, freeing up capital to focus on their more core existing properties and new opportunities which are likely to become available in Q1 2021.
What do you think the reminder of the year will be like?
DC: It will be slow in terms of convincing purchasers to execute on deals, however there will continue to be deals available with motivated vendors. I feel there will be a larger swing to off-market brokerage deals and little on-market activity, which is rare for myself. We are keeping close to purchasers and building these relationships, as this is the best opportunity for us to execute more deals. Reason behind this is that the purchaser groups are limited and vendors are motivated if they are willing to sell.
AP: Assuming there are no further restrictions and lockdowns within NSW, I think that the remainder of the year will look much the same as the current climate. As we get more accustomed to living in a world where a persistent low level of case numbers exist and occasional outbreaks become normal, there is likely to be some increase in transactional activity, but I can’t see there being any meaningful change in the market until a vaccine or treatment becomes available.
Where might there be opportunities?
DC: Investment assets are less favourable currently unless secured with government or strong tenant profiles. Currently, vendors are faced with tenant risk and purchasers are looking to capitalise on the vendors facing these issues. These assets are currently faced with less competition, specifically in office buildings or retail buildings.
Secondly, there are little opportunities on-market, however off-market purchasers will be able to snap up a property without large amount of competition. We marketed a property recently and saw over 150 enquiries, five registered bidders and 111 bids. A purchaser will be able to execute a deal with terms and price favourable.
AP: There is currently a chronic shortage of properties in the market, which is at odds with several opportunistic purchasers who are actively seeking to purchase with the view that the market has reached its bottom. As Demi mentioned, we recently auctioned a boutique DA approved development site in Summer Hill which resulted in 111 bids. The auction itself ran for over an hour, and ultimately, we sold the site for a price which is arguably on par with pre-COVID levels. This competition was driven predominantly by private owner builder developer who needs to secure a site so that they can continue to work and keep their employees working.
Vendors who put properties on the market at present are facing very little competition from other on-market properties, which potentially allows them to maximise the price before the anticipated increased on-market supply in Q1 2021.
Given your lockdown experience, what insight have you taken from it?
DC: Regardless of your industry, the ability to adapt to change is essential to be successful. With COVID-19 present in our lives, we had to adapt and change our day-to-day working lives to continue driving sales. The way in which we did this was by focusing more on buyers rather than vendors and concentrating on off-market deals rather than on-market deals. This wasn’t the case pre-COVID, when we were more focused on vendors and on-market deals.
The other is mental strength. From local down, market sentiment and the overall fear of an economic disaster, we are on a rollercoaster of emotions as commercial agents. With the day-to-day uncertainty, a set routine and exercise were key for me in this difficult time we were faced with. I am a big believer in ignoring all economic factors, outside factors and concentrating on the fundamentals of being an agent. Once you adapt, move forward and carry on, success will still be rewarded. Distractions and complaining of these circumstances are what can make you lose focus.
AP: I have two key takeaways from the lockdown experience.
The first is that the market continues to function, even in the worst of times. The broader team and I have continued to transact commercial properties for very respectable prices throughout the lockdown period in spite of reports that we are facing one of the largest recessions in living memory. These transactions ranged from $1 - $11 million and include commercial investment properties through to development sites. Agents who think strategically and know how to position a property for buyer engagement can make all the difference and still facilitate sales even in a challenging market.
The second is that flexible working arrangements are here to stay. COVID-19 has forced almost all businesses and employees to challenge the way in which they operate, especially whether they can do so remotely. Before these measures were introduced I was sceptical as to how practical this was, but I think the past four to five months have demonstrated that, with a little getting used to, flexible working and working from home can provide significant improvements in productivity and work life balance.
What are your final thoughts?
DC: In the midst the COVID-19 lockdown, we managed to execute two deals – one at $11.1 million and one at $1.275 million - both via our laptops at home. COVID-19 is just a speedbump in our world that we have had to face, and with our strong positive mentality and hard work we managed to deliver a great result for our two vendors during a period where we could not even inspect these properties.
I believe that part of this success was driven by the strong relationships we have as a team. I’m a big believer in speaking your thoughts, and during this time our colleagues at Knight Frank meant we did not feel alone. As a team, we caught up weekly with conference calls to talk about the market and how we were each going. Mental health is so important, we should all look out for each other and feel as though we can be open about what we are going through.
Finally, purchasers will always want to purchase, and vendors will always look to sell. Positioning yourself as a trusted advisor and remaining active within your market is of the utmost importance, particularly in a pandemic. Our positive attitude, thanks to a strong team support network, along with our in-depth knowledge of what was happening in the market due to remaining active, meant purchasers and vendors were open to working with Knight Frank, resulting in the deals and success we had throughout lockdown. We have built a lot of new relationships over the past five months since the pandemic began.
AP: 2020 has absolutely been a year of change and challenges, driven by the events of the COVID-19 pandemic. However, if we set aside the trigger, from a property perspective this has not been a typical cooling of an otherwise protracted boom period within the overall property market. After an extended period of unprecedented price growth, we are now seeing the market ‘take a breather’ with a more normal and balanced supply and demand equation. As a result, there has been a meaningful reduction in supply of residential approvals (mainly apartments), which once the COVID pandemic is behind us, will be the impetus for a renewed period of price growth as the economy re-emerges and returns to a period of normality.
Market participants remain active and having the right positioning strategy remains more important than ever, as demonstrated by numerous sales completed by our team throughout this period. Opportunistic purchasers are becoming increasingly active, many of whom have taken the view that the current price reductions (around 5-15% on average) reflect a bottoming of the market and are actively seeking to secure assets with a long term outlook.
Whilst the commercial market has evidently moved into a new phase of the cycle, I remain optimistic that property will remain a sought after and core asset class within the global investment market, and that better times lie ahead.