Welcome to this week's Property News.
A far quieter week this week with just a few major transactions to report while most AREITs go on a zoom road show to sell their latest results to key investors.
High on the agenda for most investors fronting the AREITs will be concerns about the impacts of COVID on future earnings and the possible need for equity raisings or asset sales as defensive moves to shore up balance sheets. Many of the REITs with significant development pipelines will also focus on the deployment of capital to accelerate earnings.
With Australia now technically in recession, the question now, is how deep will it be and how long will it last ? A survey of 12 economists this week revealed that they are expecting the recession will be short lived with a resurgence in consumer spending to return the country to positive growth by Q3 (assuming Melbourne exits stage four restrictions). The economists' are pencilling in a median result of 0.35% growth for the third quarter, rising to 1.4% for the fourth quarter of 2020. The key to this will be whether people feel confident enough to go out and spend the savings they have generated from the government stimulus.
If the Retail Sales in July is anything to go by, that return to growth may well be right. The ABS stats released this week revealed total sales in July were up 3.25% for the month taking the total sales of Food Items over the past 12 months up +8% above the 12 months to July 2019 and for Non Food items up +0.6% on the prior corresponding period.
So where to from here… if Melbourne emerges out of lockdown and COVID cases remain relatively low, we would expect the state borders to open and consumer confidence to pick up in the lead up to Christmas. This will assist businesses to put out the call to return to the workplace in 2021 and allow the economic engines to warm up.
A fully speed economy is still some way off as tourism and travel industries will remain affected for some time. When those sectors return, we will then need to watch the impacts on property from inflation and the prospect of higher interest rates. Typically market rent reviews and lease expires provide real estate with a good hedge against these risks.
Until next week,
Warwick
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