The Australian property sector – What we know at this point
Insight from our Research Partner Innovociti’s Director Malcolm Aikman
The overall and long term impacts on the Australian Property market from the COVID-19 virus are difficult to ascertain at this point. Across the industry sales have slowed; workers have been stood down or worse, made redundant; and properties have lost value. What is the future for our industry?
It is too early to tell however through an analysis of the Australian share market we can provide some insights on how the property sector is faring in comparison to other parts of the economy and what might this might mean for the different types of property going forward.
The Australian Stock Exchange (ASX) measures the movement of company share prices in different industry sectors through a set of indices. Innovociti has analysed the movement of nine industry indices for the first quarter of 2020 (January to end March) to see how they have changed in comparison to each other.
In the following chart AREIT (Australian Real Estate Investment Trusts) represent the Australian Property sector and is shown as the royal blue line. All indices have started from the same point as of 1st of January, however the chart shows that the AREIT index lost over 40% of its value in late March before recovering to be down around 30% from the start of the year. This is the second worst performing index. The worst performing index has been the Energy sector which lost almost 60% of its value before recovering to be down around 45%.
There is a group of other indices that have lost between 20% and 30% of their value since the start of the year including the Financial sector, Industrials, Information Technology, Materials (Manufacturing), and Metals & Mining sector.
Whilst all indices went through a period of negative growth, two sectors have come through relatively unscathed so far – Consumer Staples, and Health Care. This is hardly surprising given the rush on food and essential household items, and the substantial increase in demand for health services, pharmaceuticals, and medical equipment resulting from COVID-19.
The AREIT index is made up of 19 AREITs and Mortgage REITS including Goodman, Scentre, Mirvac, Stockland, Lendlease, amongst others. Such property owners have been hit hard by the government’s measures of social distancing, working from home, concerns over COVID-19 infection rates, and direct and indirect job losses. Whilst these factors are all understandable, they nevertheless have had substantial economic impacts.
So what can we interpret from this for the future path of the Australian property industry? It has highlighted the importance of convenience retail shopping assets. When panic levels reached their highest we saw what people valued most, and that was their retail essentials – food, milk, personal hygiene products, pharmaceuticals, and alcohol.
Online retailing also came into its own. It is hard to imagine how we would have coped if this had happened in an age before the internet. But maybe the spread of the virus wouldn’t have been quite as far reaching in an era where there was a lot less international travel. We’ll never know. It’s likely that a certain proportion of converters to online retailing will become ongoing users and existing users who have found new product avenues will maintain their higher online purchasing levels. This will support the previously strong growth in industrial properties focused on logistics.
Health property assets are likely to be the big winners out of this. On the surface this may appear a “no brainer” but it will be necessary for the property sector to understand the different elements of this sector and their sometimes unique accommodation requirements. Private hospitals, day surgeries, GP centres, and aged care facilities are relatively known assets. What is less known is the requirements for some of the really large businesses in this sector, such as CSL, Fisher & Paykel Healthcare, Cochlear, Sonic Healthcare, and Resmed. What are their locational drivers? Are they industrial tenants, commercial tenants, or something our planning policies don’t cater that well for?
Tough days ahead, but some areas for opportunity will arise. Good luck.