Welcome to this week’s Property News.
This week, the AFR held their socially awkward Annual Property Summit with the following key takeouts;
- The major Office and Shopping Centre landlords are concerned that the trading of their REITs at deep discounts to NTA may expose them to a privatisation play. My view is that the NTA gap for these REITS will reduce as and when valuations drop further (and they will) and when investors have confidence that the leasing conditions & valuations are reflecting the market. The REIT managers need to do more to instil this confidence if they want to reduce the NTA gap.
- The major landlords are extremely concerned that office staff have become too accustomed to working away from the office and they are facing a threat of substantially lower demand for office space into the future. My view is that these Landlords will be pushing hard the debate about the benefits of working from the office, but that the future will be that business will embrace a more flexible approach to working and will use the opportunity to reduce their space requirements.
- Non bank lending has become far more sophisticated and will play a bigger role in funding larger projects as well as M&A Activity in 2021.
This week, we also saw preliminary retail turnover figures for August which showed a -4% fall from July driven by a -12% fall in Victoria due to the COVID lockdown. Sales were however still up 7% on August 2019 and total sales over the last 12 months remains up approx +3.5% on the previous 12 month period. So overall, retail trade is still doing OK, it is just that the population has shifted the way it acquires retail goods to more of an online purpose, and has also shifted the type of goods being acquired.
So Solomon Lew continues the battle with Shopping Centre landlords threatening again to close 350 stores if Landlords don’t drop rents. Despite Premier Investment growing net profit by 29% this last year, Mr Lew insists that Landlords permanently adopt percentage rents and ditch the traditional model of fixed rents. Perhaps if Premier Investments were prepared to offer Landlords 20% of the gross sales, they may consider it, but I can’t see either side capitulating on this. Landlords will however have to scale back rents and may attempt to install a percentage rent ratchets to allow a return to normal rent conditions once trading improves.
Also this week, the Federal Treasurer announced that the Government will remove the responsible lending obligations from the National Consumer Credit Protection Act 2009 which became a more rigorous constraint on lending following the Banking Royal Commission. The impact of this decision is likely to result in more capital being released to investors and small business as the economy seeks to move out of the recession. Residential markets will feel positive affects from this decision in 2021 and beyond.
Naturally, the banks welcomed the changes, saying they would reduce the burden of regulation, cut red tape for consumers and allow them to approve loan more quickly. Banks shares moved higher on Friday as a result.
Until next week.
Warwick
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