Are coronavirus fears set to hit shopping centres?

Chadstone is part of Vicinity Centres’ $22 billion portfolio.
Chadstone is part of Vicinity Centres’ $22 billion portfolio.

The international spread of the coronavirus is the latest challenge to hit the ailing mall sector, ­already dealing with a series of retail chain collapses, an extended drought and the impact of bushfires along the eastern seaboard.

Landlords hit by falling confidence and diminished spending by nervous consumers are now facing the threat of a fall-off in custom just as consumers return to work routines.

The centres most at risk include luxury properties in the heart of Sydney and Melbourne, which attract a strong crowd of offshore Chinese visitors and are also well-supported by local Chinese communities. The corona­virus threat is ­likely to impact on luxury specialty sales as consumers switch to internet purchasing and “pick up and go” buying, ­rather than lingering in centres and heading to dining precincts.

This could accelerate the ongoing shift towards e-commerce and away from traditional bricks and mortar retailers, placing further pressure on rental levels.

Charter Hall Maxim head of listed securities Winston Sammut says the coronavirus problem ­appears to have had an initial impact on travel plans domestically in China, particularly over the Chinese New Year period.

“This now looks to have spread to international travel in and out of China,” he says.

“Over recent years Australia has been a beneficiary of growing Chinese visitations, however this is now expected to dramatically slow down and impact on passenger traffic on Australia’s airports.

“From a retail perspective, a lot of the inbound Chinese tourists have been drawn to a number to retail centres with sizeable exposures to high-end retailers, whose sales are now likely to deteriorate as a consequence.”

With discretionary spending facing an additional indirect impact from the virus, Sammut says investors would prefer non-discretionary retail assets.

But he says the impact of the coronavirus is likely to be felt less in Australia’s apartment market initially, as the number of buyers from Asia had been decreasing over the past 12 months or so due in part to tighter lending restrictions on offshore buyers.

“The virus may prompt Chinese and other Asian residents to look for safer pastures like Australia, which could result in ­increased demand for apartments,” Sammut says.

CLSA analyst James Druce says virus-related concerns will hit malls with high tourist spending such as Westfield Sydney and Melbourne’s Chadstone.

He says apartment sales could be positively impacted if the Australian dollar dropped: “We know that in the past foreign buyers are quite currency sensitive.”

The Data App director Rob Ellis suggests the impact may not be positive because demand for apartments on the eastern seaboard is driven by migrants from China and India.

Sydney Sotheby’s International managing director, Michael Pallier, says some Chinese buyers are extending their stays in the city as they do not need to return home yet, allowing them to look for homes.

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