Will there be a Revival of Real Estate Sector in Post Pandemic Era?

The COVID-19 pandemic is said to have had a severe impact on the property market of Australia. Sales in the market have been hit hard with numbers down by millions of dollars. Further, the crisis has created significant job losses and thus, several tenants have been unable to pay their respective tents and have had to vacate the properties.

COVID-19 is not only said to impact the housing property market but also the commercial property space since retailers have had shuttered their stores due to lockdown measures. The COVID-19 and its implications on the related businesses have left a dramatic shock to the real estate market.

With people losing jobs and no means to pay rents, it is expected that the Australian property market might undergo a tough time. However, there are real estate experts who believe that the Australian property market shall witness losses lower than expected and shall boom in the upcoming phase.

Recent Developments

Recently, it was reported by media sources that US investments in the Australian property market had surpassed Chinese investments in the same market during the financial year 2018-2019. There was a significant jump noted in the US investment in Australian real estate, which was followed by a significant surge in the investment from Canada.

Now, that the world has been dealing with the COVID-19 pandemic, US has been the most severely hit country with around 1.35 million confirmed cases across the country and a death toll surpassing way beyond the number of American deaths in the Vietnam War that lasted from 1955 to 1975.

The prevailing uncertain situation and increasing burden of a halt in economic activities have been a concern for various sectors of the economy. Consumer spending has reduced, and people are only spending on necessary items maintaining their deep pockets.

Lately, real estate players have been feeling the heat from the disruptions caused by the COVID-19. Let us look at some of the real estate players listed on the ASX and discuss the recent developments with them along with their future expectations.

Unibail-Rodamco-Westfield

Premier global developer and operator of flagship destinations, Unibail-Rodamco-Westfield (ASX:URW) had closed all its shopping centres since 24 March except in Sweden and The Netherlands. The Company had moved temporarily to billing monthly in the markets where rents are billed quarterly in advance, and the Company had collected approximately 20 per cent of the April retail rent as at 24 April 2020.

This was despite the extended payment terms for most of the April and May rent without applying penalties.

By means of a combination of rent relief and rent deferral, the Company looks forward to extending its support to the tenants through the crisis, especially small and medium-sized retailers as well as certain restaurant operators.

Also, URW is hopeful of saving around €60 million through continuously implementing suitable measures to offset the impact of the crisis.

The governments across regions, where the Company operates, have taken measures to gradually lift the restrictions imposed. Moreover, the Company looks forward to safely re-opening its centres and complying with all applicable health and safety regulations.

On 12 May 2020, URW shares ended the day’s trade at $4.100, a decline of 3.073 per cent from its previous close.

Growthpoint Properties Australia

Growthpoint Properties Australia (ASX:GOZ) had received rent-relief requests from its tenements, including waivers, rental reductions, deferments and had implemented Board-approved process to serve the purpose. The Company is in the process of reviewing financial information of the tenants and use of their property and is unable to quantify the financial impact of the same for the Company.

Along with a robust balance sheet and well-positioning debt covenant limits, GOZ has considerable liquidity from undrawn debt lines of $235 million and $41 million of cash on its balance sheet and no debt maturing until FY22.

Due to the ongoing uncertainty around the COVID-19 pandemic, the Company withdrew its guidance as thing remain misty with respect to its likely impact on the Company and is closely monitor the situation.

On 12 May 2020, GOZ shares ended the day’s trade at $3.010, an increase of 0.669 per cent from its previous close.

Vicinity Centres

In March, Vicinity Centres (ASX:VCX) had also withdrawn earnings and distribution guidance considering the uncertainty around the impact of COVID-19 on its operations. Moreover, in March 2020 quarter, the Company had its sales figures impacted by

• Variances in customer traffic
• Mandated and voluntary retail store closures
• Government ‘stay at home’ directives
• Consumer spending redirected toward non-discretionary items

As restrictions have recently begun to ease and the retailers who closed their stores voluntarily in prior months are beginning to reopen for trade, the Company had witnessed early signs of a recovery in centre visitation, with 530 stores reopening in the past seven days as on 06 May 2020.

VCX believes that the retail environment is still unstable, and the challenging scenario are likely to remain for at least a year. However, seeing the speed with which the pandemic has been contained, the Company is optimistic about Australia’s resilience and is focused on current recovery, and offering customers and retailers with the opportunity to return and reconnect to its centres in a safely.

On 12 May 2020, VCX shares ended the day’s trade at $1.450, a decline of 3.01 per cent from its previous close.

The GPT Group

The GPT Group (ASX:GPT) has had solid momentum at the beginning of the current year, which was dominated by the extraordinary measures executed in response to the COVID-19 pandemic.

A new commercial tenancy Code of Conduct announced by the e National Cabinet aims to help small and medium enterprise (SME) tenants with a turnover of less than $50 million, that qualify for the Federal Government’s JobKeeper program, and are suffering financial stress or hardship.

Based on the analysis of the Company’s portfolio, SME tenants are estimated to account for the following proportion of portfolio net income:

• Office – 21 per cent
• Logistics – 14 per cent
• Retail (including franchisees)– 36 per cent

Moreover, GPT has also implemented several initiatives to reduce or defer spending on non-essential and discretionary items across the business due to the current operating environment put forward by COVID-19 and has postponed the commencement of both the Rouse Hill retail expansion and the Melbourne Central office and retail development.

Also, the 2020 Short Term Incentive Compensation scheme as well as the 2020–2022 Long Term Incentive scheme have been withdrawn to ensure that the business remains in a robust financial position and is well placed for the regaining phase in the post-COVID-19 era.

On 12 May 2020, GPT shares ended the day’s trade at $4.100, a decline of 1.679 per cent from its previous close.

Bottomline

As the restrictions are still in place, and there is no idea regarding when the economy will be operating in full swing, the real estate players remain in a state of uncertainty. Moreover, sentiments of the people regarding the property market remain low, and consumer spending remains limited. It shall be interesting to see how things unfold in the future when the economic activities gear up.