The impact of Coronavirus is being felt globally and the property sector is not immune. There will be short and longer term effects that will be felt across the commercial property sector.
Based on discussions with real estate agents, property owners, property managers and finance industry participants, the team at Acumentis sense that, at this stage, we are experiencing a pause in the commercial market. How long the pause lasts for will determine the degree of impact that will be observed in the various markets.
These effects will likely vary across asset classes and sectors, and between individual properties. Those backed by Government and essential service-related tenants, with long WALES and secure cashflows possibly seeing flat, or even positive outcomes. Other assets, with shorter WALES and tenants that have been heavily affected by the restrictions, will likely see more marked discounts.
Research seems to indicate that due to COVID-19, supermarkets, pharmacies, hardware and home entertainment retail are trading well with a number of tenants indicating an increase in turnover. Food and beverage, luxury goods and travel and tourist related industries have been hardest hit in the first instance. Overall, a more general slowdown, coupled with supply chain issues, is beginning to negatively affect a wider group.
Acumentis is observing markedly decreased transaction volumes since late March. The transactions that we have been involved with were predominantly negotiated prior to Government restrictions being announced on 22 March 2020. There are insufficient transaction volumes at present to indicate potential trends post COVID-19, though we have observed some price reductions and postponements of acquisitions by purchasers.
Trends will emerge over time, however every asset needs to be considered on merit with a tailored approach. There are still funds available to place in the real estate sector. We are already seeing some investors gearing up in readiness for opportunistic buying. There is a very low interest rate environment domestically, and the Australian dollar is attractive to overseas investors.
Valuation fundamentals, in terms of differentials, will likely be particularly important. We may see a concertina effect where secondary assets with poor quality tenant profiles are more heavily discounted than those with secure cashflows as investors seek to mitigate risk.
Acumentis is well placed to support market participants in these turbulent times with scenario testing, landlord/tenant negotiations, market rental advice and bespoke research. These services are provided by our team of property consultants alongside our traditional valuation services for SMSF’s, Stamp Duty, Insurance and Litigation.
For assistance with your commercial property needs contact Acumentis on 1300 882 401 or visit Acumentis.com.au
To keep you informed, we will share insights on the impact Coronavirus is having across various sectors of the property market via a video series over the coming weeks.
View our COVID-19 Conversations with Acumentis series here.