Office and retail falling rates biggest concern for AREITs
Australian real estate investment trusts (REITs) will need to transform their portfolios due to structural changes in tenants’ behaviour, triggered by the COVID-19 pandemic, and office and retail rental rates are beginning to weaken, according to Fitch Ratings.
The firm said that although rental rates might remain stretched, in general the majority of A-REITs adapted well in terms of their portfolios’ stability in 2H20 and the high quality of their portfolios should help them protect from rising vacancies.
According to Fitch, retail portfolios would see the most change over the short to medium-term as the sector would continue to grapple with online sales growth.
“We expect retailers to streamline their store networks in 2021 – and we believe this will see a ‘flight-to-quality’ as they seek to tap the higher footfall and other amenities that better-quality malls provide. This will support occupancy across the major REITs' portfolios, but is still likely to lead to some weakness in rents,” the firm said.
At the same time, changes in the office sector would take longer to materialise due to the longer weighted asset leases and the overall structural demand would fall as businesses permanently utilised flexible working arrangements.
As far as the industrial sector was concerned, Fitch expected it would continue to benefit from increasing online sales and higher inventories as businesses sought to avoid supply-chain disruptions.
“We expect industrial property development to rise, though this may be moderated by limited land supply and environmental considerations,” the agency said.
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