COVID-19 HITS PROPERTY INDUSTRY SENTIMENT

There has been a rapid and steep decline in sentiment across the Australian property industry caused by the COVID-19 pandemic according to the ANZ Property Council industry survey for the June 2020 quarter.

National industry confidence levels have plunged by 61 index points from the previous quarter to 62 index points for the June 2020 quarter – the lowest level in the history of the survey which started in 2011. A score of 100 on the index scale is considered neutral.

Two-thirds of survey respondents said COVID-19 was already impacting on their businesses, with 35 per cent reporting a serious impact. 87 per cent expected this impact to worsen in the next three months with over half anticipating a serious impact. 67 per cent of respondents said the pandemic was having a moderate impact on current project construction schedules at this stage, with 15 per cent reporting a serious impact. 

Significantly, national staffing level and forward work expectations have fallen into negative territory for the first time in the survey’s history. (The announcement of the JobKeeper wage subsidy to support employers to retain their workforces was made late in the survey period.)

“These are troubling findings given the importance of the property industry to the Australian economy,” said Ken Morrison, Chief Executive of the Property Council of Australia.

“Property is a big driver of employment and economic activity, and the plunge in expectations for these key drivers highlights the critical importance of government action that supports the industry now and into the future.

“No sector of the economy is being spared from the impact of COVID-19, but property is the nation’s biggest employer and contributes more than 13 per cent of GDP. This means the property industry needs to be front and centre for policy-makers as they manage and plan the economic and policy response to the pandemic.

“This includes the importance of keeping construction sites open now and stimulus measures to support businesses, as well the longer-run impacts from the pandemic that may play out for many months once the public health crisis has passed.

It will be important for policy makers to monitor the impacts on rental income, development activity and capital markets on the property sector,” Mr Morrison said.

ANZ Senior Economist, Felicity Emmett commented: “After recovering through much of 2019, property sentiment has taken a sharp hit from the coronavirus and the shutdown measures put in place by federal and state governments to contain it. 

“Just as the lockdown measures have been broadly-based, the deterioration in sentiment has been equally widespread. Sentiment across the residential, office, industrial, retail and tourism sectors have all been sharply impacted. Not surprisingly, the tourism sector has been the hardest hit. 

“Across all sectors, price expectations have turned around sharply, employment prospects have deteriorated and the construction outlook has turned down. The construction sector is not subject to a shut-down at present, but the downturn in the outlook is concerning, and suggests that the impact of the virus may be more long lasting on the property sector. With long lags associated with construction approvals, commencements and completions, a quick rebound once the lockdown is eased seems unlikely.”

Key findings from the ANZ/Property Council Survey June 2020 Quarter:

  • National confidence levels have decreased by 61 index points to 62 in the June 2020 quarter. All markets tracked recorded a decrease in sentiment. A score of 100 is considered neutral. 

  • National forward work schedules decreased from 36 to -22 over the June 2020 quarter. All states and territories recorded negative expectations for the first time since the Survey’s inception in 2011.  

  • National staffing level expectations decreased by 31 index points to -16 over the June 2020 quarter.  All states and territories tracked recorded negative expectations for the first time since the Survey’s inception in 2011.  

  • National economic growth expectations remain in negative territory at - 83 index points in the June 2020 quarter. (It has been negative for the 3 consecutive quarters and is at its lowest point on record) State economic growth is expected to significantly decrease with all markets recording fairly similar results. The results ranged from SA (-73) to NSW (-79) 

  • Respondents from all states and territories believed the impacts of the coronavirus outbreak will be more severe over the next three months. 66% of respondents are currently experiencing a moderate to serious impact on their businesses from the coronavirus outbreak, increasing to 87% of respondents expecting a moderate to serious impact on their businesses over the next three months from the coronavirus outbreak. 

  • 74% of respondents believed the Hotels, Tourism and Leisure sector will be the most severely impacted by the Coronavirus outbreak over the next three months. Followed by shopping centres (15%), commercial office (5%), retirement living (3%), residential (3%) and industrial (1%). 

  • 2/3 of respondents (67%) believed the coronavirus outbreak is having a moderate impact on their current project construction schedules.  18% of respondents believed there will be no impact on their current project construction schedules while 15% believed their current project construction schedules would be seriously impacted. 

  • All markets believe it will become more difficult to obtain finance over the next 12 months, with exception of ACT which recorded neutral expectations. 

  • There has been a big turnaround in residential prices over the next 12 months, with the national expectations index decreasing from 35 to -23 index points over the June 2020 quarter. 

  • Australian office capital growth expectations fell 54 index points to a record low of -36 index points over the quarter. National capital growth expectations over the next 12 months for the industrial sector decreased to a record low of – 15 index points over the June 2020 quarter. 

  • Australian retail capital growth expectations remained in negative territory falling a further 51 index points to a record low of -65 index points over the June 2020 quarter. 

  • The national retirement living capital growth expectations have decreased by 47 index points over the quarter and is now at a record low of -17  index points. 

  • Sentiment for Australian hotel capital growth expectations decreased by 91 index points to a record low of -81 index points over the June 2020 quarter.  Hotels construction activity is expected to be the most affected sector sitting at -20 index points, closely followed by the retail sector at -19 index points. 

  • Despite decreasing sentiment, the industrial sector and the retirement living sector remain in positive territory recording 7 and 8 index points respectively.  

  • All states and territories tracked expect a decrease in residential apartment pre-sales over the next 12 months.  

  • Confidence in the Federal Government’s role in delivering policies that encourage jobs and economic growth is slightly positive at 0.5 index points. Over the June 2020 quarter, national sentiment increased from 0 to 0.5 index points. 

  • Economic management (33%) is considered the most critical issue for the property industry that should be addressed by the Australian Federal Government, according to survey respondents. This was followed by cities and infrastructure delivery (18%), tax reform (15%), energy, environment and emissions (14%), housing supply and affordability (13%) and planned population growth (7%). 

  • Prime and secondary cap rates are expected to ease across all markets tracked over the next 12 months. 

 

The survey was based on 918 online responses from 16-31 March 2020. 

To view select ANZ/Property Council Survey historical data series in the Property Council’s Data Room, click here. 

To find out more about the ANZ/Property Council Survey and our Supporting Sponsor RCP, click here. 

To view select ANZ/Property Council Survey historical data series in the Property Council’s Data Room, click here. 

To find out more about the ANZ/Property Council Survey and our Supporting Sponsor RCP, click here.