The future of shopping malls, office buildings and commercial real estate remain in the balance following the coronavirus pandemic. As a result, Australian real estate investment trusts (A-REITs) listed on the ASX will have to reconsider their business models in order to adapt to the new world following the pandemic.
Retail facing headwinds
With many retailers struggling to pay their bills and e-commerce emerging as a real threat, shopping centres face an uncertain future. ASX retail shares like Premier Investments Limited (ASX: PMV) have refused to pay landlords, citing the lack of foot traffic, and have demanded rent relief initiatives. As a result, large mall operators like Vicinity Centres (ASX: VCX) could be facing an uncertain future even if social isolation measures are relaxed.
With many shoppers flocking online to spend their disposable income, some companies have been forced to adapt to the changing environment. Scentre Group (ASX: SCG), which owns and operates Westfield shopping centres in Australia and New Zealand, has looked to combat the coronavirus pandemic. Scentre recently launched a click and collect service that enables consumers to purchase products online from Westfield retailers and pick them up from a designated location.
The 'work from home' boom
Recently, some companies have made headlines by declaring that some, if not a majority, of their staff will be working from home permanently. The coronavirus pandemic has forced businesses to rethink the need for expansive offices as workers remain productive working eternally.
A recent article in the Australian Financial Review cited how open plan offices could be the next hotbed for spreading the coronavirus, with many workers sharking desks and other amenities. With many employers and landlords using large, open-plan offices, resumption to normal operations could be reconsidered. Commercial tenants will also face the possibility of higher cleaning bills in order to disinfect common amenities such as lifts, door handles and railings.
Should you buy ASX REITs?
The A-REITs are renowned for their defensive characteristics and their ability to benefit from central bank stimulus. Despite the numerous tailwinds facing the industry, I believe there are still pockets of value available for investors.
Like Scentre Group, many A-REITs will have to find innovative solutions in order to combat the changing environment. In addition, essential services such as supermarkets and pharmacies have experienced a surge in demand. As a result, operators such as Charter Hall Group (ASX: CHC) and Shopping Centres Australasia Property Group Re Ltd (ASX: SCP) that have exposure to these services could provide long-term value.
I think investors should wait to see how commercial real estate performs when restrictions are lifted before making an investment decision.
