The knock-on effects of the coronavirus outbreak could be “significant” for listed real estate companies, according to a new report from analysts at RBC Capital Markets.
In its note, the team – led by Julian Livingston-Booth – wrote: “We expect the COVID-19 virus to have limited direct impact on our coverage. However, any knock-on effect could be significant, impacting landlords to differing degrees.”
Livingston-Booth and colleagues flagged shopping centre owner Hammerson as the most at risk in the near term of the companies covered by RBC.
“Hammerson appears most exposed to the direct impact of the virus, with c. 25% of its EBITDA from premium outlets that benefit from tourists and a high proportion of sales-based rents,” they wrote. “For Unibail, just c.7% of its EBITDA is from conference centres.”
A growing focus will be placed on the knock-on effects of the virus, the note said.
“We believe the virus could increase the risk of tenant failures, in an already challenging UK retail market, impacting landlords’ rents,” RBC’s analysis wrote. “Risks to 3PLs [third-party logistics] and other warehouse tenants could also grow. For offices, we believe weaker take-up is a greater risk.”
Property companies have been addressing the spread of the virus in their latest communications with the market.
In Hammerson’s 2019 results, published on 25 February, the company said the threat from the disease “is increasing”, adding that supply chains, travel and tourism are being affected.
“From a group perspective, the latter risk is likely to impact our premium outlets, particularly Value Retail,” the company’s report said. “However, exposure is limited, as at Value Retail only 9% of sales come from Chinese guests shopping tax-free.”
At serviced operator IWG – not covered by RBC’s analysts – chief executive Mark Dixon noted in 2019 results that the virus had led to the “brief closures” of the company’s centres in China.
“While we cannot be certain how long this situation will last, we continue to monitor the situation and will act swiftly where necessary to help ensure the safety and wellbeing of our customers and employees,” Dixon added. “We are extremely grateful for the incredible effort of our teams in dealing with this global health emergency.”
In another recent report, analysts at JLL said the spread of the virus could encourage occupiers to build provisions for community hygiene into their leasing agreements, as well as leading to an uptick in the adoption of proptech solutions such as robotics that can detect, sanitise and clean buildings.
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