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Commercial Property Owners Hit By Low Retail Footfall & WFH

With footfall still down at the country’s shopping malls, retail property owners continue to be hit by the COVID-19 crisis as retailers struggle to pay their rent.

For instance, QIC Shopping Centre Fund’s posted a total return of -21.5% over the past 12 months, while Lendlease’s Australian Property Fund Retail portfolio is also down 20.7%.

In addition, $6 billion has been written of the value of AMP Capital’s combined portfolio.

Furthermore, many analysts expect lower retail rents to be the new normal in the post-COVID era. For example, Morgan Stanley has estimated that rental income for major mall owners could fall by as much as 18%.

Indeed, the Australian Retailers Association and other key industry stakeholders have called for a more flexible rental structure that can move up or down.

“We have not seen assets revalued this frequently in previous downturns. It really highlights the difficult conditions, and reflects how quickly assets can be impacted by physical disruptions and other restrictions,” Mitchell McCallum, Executive Director of MSCI, told the Australian Financial Review.

“The removal of JobKeeper and the rise of the second wave continues to threaten any recovery in retail. In addition, the impacts to office [property] remain unclear, with subdued demand offset by increased space requirements leaving the market speculating at the overall impact.”

It is a similar story for corporate property owners. Adrian Taylor, CEO of Charter Hall, which owns 178 retail properties and 66 office spaces, told The Australian that the return to these spaces has been slower than expected, and is calling on workplaces to encourage people back to the office.

“Larger building owners are all ready and well prepared, and so too are the CBD retailers who have done a terrific job preparing their business to safely service their customers,” Taylor said.

“I think a lot of current activity is a reactive response to an uncertain time and it’s far too early to tell exactly what the long-term impacts and change may be. But it will likely involve an ecosystem anchored by a well-designed office, combined with flexible work from home, from third spaces and from your client’s office.”

The latest Gartner survey on working during the COVID-19 pandemic found that 82% of company leaders plan on continuing to allow their employees to work from home at least some of the time. This could result in companies hiring less office space.

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