COVID-19: Implications for unlisted real estate
The primary concern for commercial real estate assets is first and foremost the wellbeing of staff and customers. As this is a health crisis, stopping the spread of coronavirus is a top priority. That means we are likely to see a reduction in the number of people visiting assets either voluntarily or by way of regulation.
The situation is still evolving, and the full effects are yet to become clear, however AMP Capital is taking precautions to minimise risk in our unlisted real estate portfolio.
What is becoming apparent to us is that the retail and hospitality sectors are likely to be most affected, whilst others, such as office and logistics, will be more insulated from the effects of the outbreak.
For retailers, the most obvious concerns are around sales and foot traffic in areas where people venture less into public due to fear of infection. It will be difficult to ascertain the extent to which this is playing out until sales figures become available, but anecdotally the effects on foot traffic have been mixed. Some retail centres actually reported an increase in foot traffic last week that levelled off over the weekend, perhaps connected with panic buying attracting a larger number of customers to centres with supermarkets. Other centres which are particularly reliant on foreign tourists reported falling foot traffic.
Another key concern for the retail sector is stock levels, particularly in discretionary retail such as apparel where supply from China is critical. Further restrictions on movement of goods will exacerbate this, as will any decline in Chinese manufacturing arising from a prolonged continuation of the outbreak there. E-commerce businesses will be similarly hit by supply-side constraints.
The office sector is likely to be significantly less affected, although some businesses may delay their leasing decisions whilst confidence remains low. In the short-term, however, we believe there shouldn’t be too much effect on overall demand. We will be in a better position to assess the full impact when the extent and duration of the crisis is better understood.
In respect to our facilities, we will continue to heed the advice of health authorities and respond as necessary as the outbreak unfolds. Until then, we remain diligent with cleaning and hygiene within our buildings (which is always of paramount importance, irrespective of the situation) and are taking additional steps, such as increasing the availability of hand sanitiser, for the safety and convenience of our tenants and visitors.
We remain confident that our commitment to investing in quality real estate places us in a sound position to withstand these developments and deliver strong returns upon a return to normality.
While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.