Weekly Review 17/8/2020

Welcome to this week's Property News and to the end of Week 21 of COVID impacts.

The AREIT results this week, were as I expected. The key highlights were;

Retail

• GPT retail earnings down -49% for past 6 months and no guidance on FY21
• Shopping Centres Australia earnings per unit were down -10.3% and distributions down -15% and no guidance on FY21
• Charter Hall Retail REIT earnings per unit were down -1.8%, and distributions down -14% and no guidance on FY21

Office

• GPT office earnings +0.9% for past 6 months and no guidance on FY21
• Centuria Office reported FFO per unit down -0.1% and forecasting a drop of -7% in distributions in FY21.

Industrial

• Goodman reported earnings up +11.9% and are forecasting no increase in distributions in FY21
• Centuria Industrial reported FFO per unit down -0.4% and are forecasting a drop of -10% in distributions in FY21

Diversified or Specialised

• Charter Hall Long WALE reported a 5.2% increase in earnings per unit and are forecasting a 2.8% growth in distributions in FY21
• Arena REIT grew earnings per unit by 5.0% and are forecasting an increase of 3%-4% in distributions in FY21

Across the board, the Australian share market continues to show signs of a faster recovery than experienced in 2008 or in 1987 (as indicated in the chart below). Australia's trade with China is surging to record highs and the demand for our financial, resources and health care sectors companies (which together make up 60% of the ASX200) have been significant beneficiaries during the pandemic.

AREITs however continue to suffer and remain some -27% below the previous peak. Whilst direct market valuations have seen asset values fall by circa -10%, there remains a significant gap still between the listed and unlisted markets, giving rise to the expectation that further valuations falls will occur.

The Property Council Office market vacancy figures released this week revealed a modest increase in vacancy rates to 9.2%. There is a long way to go before the reality of the economic impacts are felt in office space use. With the unemployment figures for July moving up to 7.5% and the effective rate near 14%, it is clear that business' will be seeking to shed office space pushing vacancy rates higher.

Adding to this dilemma, the Property Council has also estimated 1,400,000 sqm of new office space is expected to be supplied over the next 3 years. Given that only 475,000sqm has been absorbed over the past 3 years, we would have to expect we are heading to a significant oversupply, unless several towers are deferred until conditions improve or more stock is withdrawn.

Until next week

Warwick