How the coronavirus will change property

How the coronavirus will change property

13 March 2020

According to Robert Harley, former property editor of The Australian Financial Review, the fall in property stocks in the past month – up to 25 per cent in the case of Scentre Group – is the first of many challenges all property players will face as COVID-19’s impact widens.

Pandemic management is a new challenge faced by the property industry.

The property industry will also face cuts to revenue, rising costs and tougher finance.

Harley believes in the longer term the crisis will change property.

“In my experience, the property industry that emerged from the crises of 1989 and 2009 was different to the one that went into the turmoil. So too will be the industry of 2020.

“Hardest hit will be the tourist sector, the hotels and retail that depends on tourism.

“In that category, don’t forget all the homes and apartments dependent on tourism through Airbnb and other short stay operators. Occupancy is down and rates are falling, by 15 per cent in Byron Bay according to a report in The Australian Financial Review this week,” said Mr Harley.

In the traditional commercial market, retail is the most exposed, particularly retail dependent on discretionary spending. Already a number of tenants are asking for rent abatement, as Vicinity Centres noted when downgrading earnings in February.

But as the crisis spreads this challenge will harden. Some retailers will be forced to close locations all together.

In terms of co-working space, JPMorgan warns that co-working and the (surprisingly significant) university demand will likely evaporate, and sub-lease space pick up.

Serviced office veteran Servcorp has reported a 30-40 per cent fall in co-working sales this year, though the shift could be offset by an increase in virtual office sales.

Other co-working operators have reported an increase in demand as major corporates split their key finance and payment teams and relocate one of the split teams, not to home, but to a co-working location.

According to Harley, industrial property seems the most insulated but it could be affected by supply chain disruption. Already new tenant demand for logistics property appears to have slowed.

The construction industry, which now sources so much of its material from China, could slow.

“The industry leaders are liaising collegiately and regularly on what needs to be done, and not done, to ensure a common-sense approach and response to the coronavirus issue,” says Stephen Conry, JLL’s chief executive in Australia and national president of the Property Council.

“All have an eye firmly on the wellbeing of staff and the condition of the buildings which house them.”

Property Council of Australia chief executive Ken Morrison supports the Morrison Government’s aim to use its support program to improve productivity.