For Australia’s largest business sector – the property industry – the impacts of the COVID-19 pandemic will be significant, both in the near- and long-term.
As Australia’s largest business sector, the property industry contributes 13% to Australian GDP and 1.4 million jobs nationally. Furthermore, greater than one in four Australians obtain their direct or indirect wages from the property industry and 14.8 million Australians invest in property through their superannuation funds. This means that the COVID-19 pandemic, which creates significant economic challenges for the industry, will have a profound impact on how property companies operate and the national economy as a whole.
In this article, we delve into this topic further, discussing the current environment and its implications on rewards and workforce planning for the property industry in both the immediate term and over the recovery horizon.
The Changing Economic Outlook
The Australian economy saw subdued growth of 0.5% in December 2019 in the lead up to the COVID-19 pandemic. These economic conditions are also reflected in Aon’s May 2020 release of the Property Industry Remuneration Report, showing a median 12-month survey-on-survey movement of 2.0% in salaries, a 0.9% percentage point decline from six months prior. There have been variations in salary movements across sectors:
- Residential construction saw a -0.7% year-on-year movement, reflecting the slowdown in residential purchases and new builds.
- Commercial construction saw a 1.7% year-on-year movement, with market salary activities softening across most sub-job families including cost planning, estimation, project management and site management.
- Property management saw a slightly higher than median movement of 2.4%, inclusive of commercial leasing and shopping centre management roles.
These recent, but pre-COVID-19, figures do not reflect the continued challenges faced by the industry, including:
- The increase in unemployment from 5.2% in March 2020 to 6.2% in April 2020. This is the sharpest increase on record and is forecasted by The Reserve Bank of Australia to increase further to 10% in June. Sustained levels of high unemployment will continue to weaken the property market.
- The impact of ongoing lockdown restrictions on the retail and hotel sectors.
- Lockdown laws causing reluctance of propety developers, investors and listed entities to push ahead with any new development projects.
The Impact of COVID-19 on Salary and Workforce Planning
The effect of COVID-19 on salary and workforce planning is evident in Aon’s pulse study for property industry clients in Australia. About a third of survey respondents have temporarily reduced fixed remuneration, with 50% of those respondents applying reductions across the entire employee population. In respect of salary budget planning:
- 31% of respondents are reforecasting their salary budgets from a pre-adjustment average of 3.0% to a post-adjustment average of 0.8% for the current financial year 2019-20.
- 50% of respondents are reforecasting their salary budgets from a pre-adjustment average of 3.0% to a post-adjustment average of 0.5% for the next financial year 2020-21.
In terms of workforce planning, 32% of respondents indicated that they have stood down part of their workforce. On average, these organisations have stood down 13% of their workplace population as a direct result of the COVID-19 health crisis.
A New Normal for the Property Industry?
Aon’s most recent release of the COVID-19 series of pulse surveys, Setting the Stage for a Return to Work and the New Normal, sees most organisations now moving from the phase of stabilising the business into planning for the future. Firms have indicated that their top priorities include planning for workforce changes, protecting employees, as well as supporting day-to-day business continuity.
The immediate challenge at hand is implementing a plan to bring employees back into the workplace once lockdown restrictions are eased. Plans include establishing limitations to common areas, visitors and in person meeting sizes. In terms of changing the physical workspace, companies are implanting increased hand sanitiser stations, traffic flow and social distancing signage, monitoring elevator access and reconfiguring office layouts. For organisations in the property sector, this planning applies to both employees, as well as property assets being managed and maintained.
While addressing immediate updates like these is important, one must also consider how the COVID-19 pandemic will lead to enduring change for the industry in the years ahead. Consider, for example:
- The increased acceptance of working from home, reducing demand for office space. Aon’s latest COVID-19 pulse survey results show that 79% of organisations will prioritise flexible work/working from home policies as part of the employee value proposition. If this trend continues, it may impact developers in securing tenants for long-term leases.
- The heightened focus on health and safety risk and the use of shared office space puts in doubt the future of WeWork type models.
- The reduced requirement for physical retail stores as the effects of COVID-19 drive e-commerce activity and embed new consumer behaviours.
- The growth of e-commerce continuing to fuel demand for industrial property.
The reshaping of the property industry will require organisations to examine the future of work over the longer term. Workforce planning will need to consider forthcoming skill requirements that will drive new business strategy and goals. Employee value propositions and total rewards strategies will also need to account for the shift in employee mindsets triggered by the COVID-19 health crisis.
Next Steps and Additional Resources
Aon’s scheduled May release of the property industry remuneration survey for the Australian market is now accessible to all survey participants through
Data Centre. This release shares an updated forecast on salary budget and the timing of salary reviews. As organisations in the property sector start to look beyond business continuity and towards recovery, we will continue to provide insight on quickly evolving market practices and offer practical advice.
To read more articles on how rewards professionals can respond to the COVID-19 pandemic, please
click here.
For additional questions about the impact of COVID-19 on the property industry in Australia, please contact one of the authors or write to
rewards-solutions@aon.com.
COVID-19 Disclaimer: This document has been provided as an informational resource for Aon clients and business partners. It is intended to provide general guidance on potential exposures, and is not intended to provide medical advice or address medical concerns or specific risk circumstances. Due to the dynamic nature of infectious diseases, Aon cannot be held liable for the guidance provided. We strongly encourage visitors to seek additional safety, medical and epidemiologic information from credible sources such as the Centers for Disease Control and Prevention and World Health Organization. As regards insurance coverage questions, whether coverage applies or a policy will respond to any risk or circumstance is subject to the specific terms and conditions of the insurance policies and contracts at issue and underwriter determinations.
General Disclaimer: The information contained in this article and the statements expressed herein are of a general nature and not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without the appropriate professional advice after a thorough examination of the particular situation.
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