Tough Melbourne restrictions to hit listed property groups, says Macquarie Equities

Surveying Melbourne’s commercial property sector, Macquarie Equities has identified the listed groups likely to be hardest hit.

Melbourne’s harsh stage four restrictions have further darked the outlook for the listed commercial property sector, Macquarie Equities says. Picture: Andrew Henshaw

Listed property companies will be slammed by stage four restrictions across metropolitan Melbourne with the owners of major centres Chadstone and Highpoint at most risk.

Shopping centre owners including Vicinity Centres, co-owner of Chadstone, and GPT, that owns Highpoint, would be hit hardest, according to an analysis by Macquarie Equities.

It warned retail restrictions would bite as they were more severe than in the initial phase of COVID-19 and major office developments by Lendlease, Dexus and GPT would also be affected by limits on construction.

Essential services can remain open, allowing owners of supermarkets and grocery stores, bottle shops, pharmacies, petrol stations, banks, news agencies and post offices to benefit.

But all other retailers must close, and Melburnians cannot travel further than 5km from their primary residence, putting many major malls out of reach.

“After four weeks of already-heightened restrictions, the additional six weeks will likely have longer-term implications on retailer profitability,” Macquarie said.

The Morrison government’s leasing code for small tenants runs until late September in Victoria and Macquarie warned that an extension of this period would result in increased income risk for landlords.

Macquarie estimates “essential services” account for about 15 per cent of rent in a regional mall but 65 per cent in more defensive, supermarket-based centres.

REITs with greater exposure to Melbourne and regional assets will be most affected and larger malls hit harder than smaller malls owned by Charter Hall Retail REIT and SCA Property Group.

Local Westfield owner Scentre would also not be immune from a decline in consumer confidence despite relatively subdued COVID-19 progression in NSW.

The move by the Andrews government to keep construction on to “pilot-light” status also puts builders at risk.

Lendlease is the most affected, with 24 per cent of its construction backlog in Victoria where it is focused on major projects. But this reduces to 4 per cent of the company’s overall earnings.

“We expect limited financial impact for Lendlease at major projects where the government is a client, albeit project delays may impact revenue recognition,” Macquarie said.

Top REITs are also exposed and significant commercial developments underway include GPT‘s 100 Queen Street redevelopment, Mirvac’s 447 Collins Street and Lendlease’s Melbourne Quarter.

Residential sales in Melbourne are also likely to come under pressure, which will impact deposits taken by Stockland and Mirvac.