How to evaluate REITS after COVID-19


Pete Morrissey, CEO of Real Estate at APN Property Group, says: “COVID-19 is a catalyst to accelerate the tenant rotation / bankruptcy and rent reversal cycle that would likely continue for several more years in a compressed period.

“While this may cause pain for property owners and tenants, you could also see the emergence of a more dynamic and customer-focused retail sector. Properties that are well positioned with owners focused on meeting consumer needs will continue to deliver strong results. of return once the markets stabilize. “

Dive adds: “Humans have consistently enjoyed shopping and dining in public areas for 2,500 years since [Ancient] Agora was built in Athens and it is difficult to argue that COVID-19 in 2020 totally changes that behavior. “

A common theory with office space is that COVID-19 will permanently change the profile of demand for office space as companies move their employees to work from home.

Morrissey says: “While we do not totally disagree with this, we do question whether companies will be willing to forgo the obvious gains in the efficiency of personal networks and personal interactions / collaborations in their organizations.” He also says that space savings for tenants of home-based staff could be offset by social distancing requirements introduced in the office.

Dive believes that COVID-19 will reduce the demand for office space and that rents will decrease, but does not see “a fundamental decrease in the value of office properties.” This is largely due to the low vacancy rates in Sydney and Melbourne that should support rents for years to come.

Industrial property appears to be the sector most isolated from the impact of COVID-19.

“Industrial property, particularly logistics, is likely to see minimal impact from COVID-19, as its tenants are likely to see strong demand through 2020,” says Dive.

Morrissey agrees, adding: “Increased spending on infrastructure, the growth of e-commerce, and a renewed focus on underpinning local supply chains will drive demand for industrial property. Low vacancy rates across the sector indicate that the Industrial property is not oversupplied. “

Those investors who recall A-REIT’s high capital raising during the GFC should be comfortable with the sector’s low orientation today. Average gear is around 28 percent compared to GFC levels of around 40 percent.

Dive says that while we have seen some small opportunistic capital raising in 2020, it is unlikely that there will be a large number of large “life and death” capital raising in the REIT sector as experienced during the GFC.

Investors can access REIT by purchasing them directly through ASX or through diversified proprietary funds. Exchange-traded funds are another way to gain exposure to property, but investors should keep in mind that the property index is dominated by retail property.

It is said to be always darkest just before dawn. Long-term investors could reap good long-term returns by examining the remnants of A-REIT.