Retail and housing in decline for listed landlords

“Sales for the quarter in residential were 26 per cent below the second quarter and are expected to remain weak for calendar year 2019, with risk to the downside given current challenging market conditions, reduced credit availability and buyer uncertainty due to the upcoming federal election,» Mr Steinert said.

«We remain on track to complete over 6000 residential settlements over the full year, with the anticipated settlement skew to the second half, and an operating profit margin over 18 per cent.»

Mr Steinert said cancellation rates have increased moderately on the back of uncertainty created by current market conditions, however default rates have remained stable at about 3 per cent.

He said the group’s divestment of non-core retail assets was continuing with the funds raised being used to buy high-performing logistics assets.

Mirvac’s chief executive, Susan Lloyd-Hurwitz, said despite tough conditions Mirvac settled 1290 lots to March 31  and remains on track to settle 2500 for the full year, which implies a big first quarter skew of 48 per cent or 1210 lots.

“In our residential business, while house prices decline across Australia’s capital cities and credit conditions remain tight, our focus on the domestic owner-occupier market and our commitment to superior customer service have seen defaults remain within 2 per cent,» Ms Lloyd-Hurwitz said.

The weaker outlooks prompted CLSA’s institutional sales operator, Michael Vincent, to issue an «avoid» recommendation on a flashnote for Stockland and retail landlord Vicinity Centre.

«We believe Stockland is a value trap despite trading at a 7.4 per cent discount to net tangible assets and prefer Mirvac given its office exposure and broader residential business with record apartment settlements next year,» Mr Vincent said in a note to clients.

Retail landlord Vicinity, the co-owner of the country’s biggest mall, Chadstone, saw its combined specialty and mini-major stores (such as H&M, JB HiFi) growth slow from 4.2 per cent in December to 3.3 per cent over the March quarter.

Grant Kelley, Vicinity’s chief executive, acknowledged the retail environment continues to evolve, but said the group was «well placed to respond to changing market conditions».

The pain isn’t being felt evenly. While retail and residential property struggle, industrial and office assets are booming.

Dexus has forecast a positive outlook with its exposure to the strong office and industrial sectors.

Ross Du Vernet, the chief investment officer at Dexus, told the Macquarie Australia Conference that office enquiry levels have increased more than expected.

«With strong white-collar job growth and low vacancy in Sydney CBD, this is seeing customers forced to move into new space,» he said.

«Dexus expects the first 90-100 days of a potential change in government to be marginally negative for office space demand given uncertainty around business operating conditions.»

The REIT’s managers all reaffirmed the earnings guidances made at the half year results in February.

Carolyn Cummins is Commercial Property Editor for The Sydney Morning Herald.

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