Global listed property sees pockets of solid rental returns

The residential, industrial and office sectors have been the most resilient in the wake of COVID-19 although the cuts to rental income will vary across sectors, according to First Sentier Investors.

Stephen Hayes, head of global property securities, noted that the key for investors in this climate would be to have a well-diversified portfolio spanning a range of sectors, given residential, industrial and office sectors were the standouts while other, such as retail malls, were badly affected as a result of pandemic.

In the US and Canada, residential landlords within the strategy’s investable universe reported rent collections ranging from 90% to 98% in May and in Europe, data from April indicates that rent collections were above 99%.

According to Hayes, this was also partly due to the fact that the residential sector was largely underpinned by the widespread fiscal support measures governments introduced globally, including boosts to unemployment benefits and cash handouts.

Also, despite the mass movement of office tenants to working from home, the sector was generally steady. In the US and Canada, rent receipts have typically ranged from 85% to 99% in May, with some landlords reporting that collections are unaffected and in line with normal levels. In Europe, to date rent collections have ranged from 70% to above 90%, but skewed towards the upper end of this range.

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“We don’t know how permanent it will be, but the trend towards working from home could reduce the need for office space over the long term. It’s important to note, however, that office occupancy costs for many services businesses are low, meaning the potential cost savings of downsizing offices are not likely to be substantial,” Hayes said.

“Moreover, most office markets entered this crisis in a robust position, with very low vacancy rates and strong rates of market rental growth.”

Not surprisingly, industrial assets, including logistical warehouses, were largely insulated from COVID-19-related lockdowns as it benefited from an acceleration of e-commerce demand and heightened supply chain activity from businesses deemed ‘essential services’.

Traditionally, retail was the sector under the most pressure, although Hayes said there were distinctions within this class. While local shopping centres, anchored by supermarkets and non-discretionary stores, were likely to outperform larger ‘destination’ regional malls.

According to the firm’s data, in the US, most shopping centre landlords reported rent collections between 50% to 60% in May, while in April, the more heavily impacted regional malls reported collections between 10% and 30%. In Europe, rental receipts were typically in the 30-40% range.