Coronavirus: Black swan event for property sector?
MAIN IMAGE: Org Geldenhuys, managing director of Abacus DIVISIONS.
The coronavirus (COVID-19) outbreak is a black swan event for the property sector, but not all tenants in South Africa will see the doom and gloom.
“The current world events surrounding the outbreak of the coronavirus can arguably be defined as a black swan event that will certainly have an unplanned, unexpected, and major impact on the world economy as well as a devastating effect on property owners and landlords as a secondary result!”, says Org Geldenhuys, managing director of Abacus DIVISIONS, a commercial property marketing and development company.
Geldenhuys says that tourism-related properties, including hotels, restaurants and lodges, will be hit first while other facilities such as conference centres, religious centres and sporting facilities will follow soon after. Bahrain has already announced that the Formula 1 Grand Prix will take place without any spectators this year; and the Pope has cancelled all his public appearances and will be streaming his services live from now on.
Geldenhuys continued to say that fear of infection will influence decisions around movement, travel, and how and where people will spend their time and money. Business travel will be limited to the minimum to avoid putting staff at risk. The general global feeling out there is to avoid any large gatherings of people and to stay away from any unnecessary travel. Countries such as Switzerland have already banned any gatherings of more than 1000 people. Online booking sites such as Airbnb and Booking.com have implemented force majeure policies to deal with cancellations as a result of medical emergencies or travel restrictions. Cancellations as a result of these policies will have a serious impact on property owners catering to tourism or business travel clientele. Business lost as a result of a cancelled event or trip will not be easily recovered again.
“Soon the knock-on effects will be felt in the retail industry with shopping centres and retail outlets becoming deserted as consumers start to favour online shopping and home delivery services above going shopping and risking infection. This will certainly affect the profitability and survival of tenants operating in the retail space,” says Geldenhuys.
Geldenhuys further says, “In China, the residential housing market has ground to a halt as no-one is coming out to view properties anymore. The same will happen here in areas that are known to have people infected by the coronavirus. Buying and renting decisions will be put off until there is certainty in people’s minds that the pandemic is over or under control. I can assure you that you will not find anyone going to a show house in the KZN estate where the first coronavirus-infected South African lives.”
Not all doom and gloom
“But it’s not all doom and gloom,” says Geldenhuys. “There are sectors out there that will definitely benefit from the current outbreak of the COVID-19 virus. The situation caused by people’s reaction to the coronavirus will favour tenants who are involved with the logistics, online retail, home delivery, and entertainment industries. Landlords with tenants operating in this space can sleep well, whilst most other property owners are in for a rough ride.”
Geldenhuys predicts that tenants offering services in the business categories listed below will see a bigger than expected growth. Their sales will increase over the next while as the viral infection spreads throughout the country and the resulting fear keeps people indoors or away from other people. Businesses that will see growth include:
- Online shopping and home delivery services for groceries, basic foodstuffs, and consumer goods. Whilst online shopping has been around for a long time, people will start looking at what else they can buy online instead of visiting a shop. Retailers with an online delivery service or dedicated online buying portals will see exponential growth.
- Takeout and fast food outlets with delivery service. Making use of this type of delivery service is typically a weekend treat for most households but will now become more mainstream as people batten down the hatches and order takeout delivery.
- Home entertainment services such as Netflix, Amazon Prime, and Google Video. If you cannot go out to watch a movie or to a show and dinner afterwards, then do the next best thing and catch up on some series binge-watching. Subscription to these services will see growth far beyond what the norm was in the last year.
- Online streaming of live events and meetings. While stadium attendance of sporting events will decline, online viewing of sports events will increase. Viewer numbers of worldwide sporting events will skyrocket whilst the actual event itself such as Formula 1 racing, soccer, and rugby matches might continue with just the administration and technical personnel in attendance. Religious communities with live streaming facilities of their services will see unprecedented growth in their online congregations, whilst services might only be physically attended by the person giving the sermon and an online streaming crew. Companies will start favouring online collaboration and web meetings in favour of face-to-face meetings whilst conferences will be replaced by webinars.
- Internet and bandwidth providers. You need good internet with lots of bandwidth to make the online world go around! These providers will undoubtedly see an upward surge in sales.
“While most of the above are online-related businesses, there are brick-and-mortar businesses that will also benefit from the potentially deadly impact of the coronavirus,” says Geldenhuys. These businesses include:
- Warehousing, distribution, logistics, and courier companies. Someone has to do the hard work. The stuff you buy online has to be stored, packaged, and delivered to your doorstep. Tenants in this space will see the need for additional warehouse space grow as the demand for online buying grows.
- Tenants supplying and installing antiseptic and bacterial control measures as well as pharmaceutical manufacturing and supply companies will see strong growth. Imagine having a tenant in your property that manufactures and sells hand sanitiser or surgical masks.
Need a shift in thinking
The world as we know it is in for a major paradigm shift that has been years in the making. We are going to see a fast-tracked move towards all things digital. Remote working and living in an online cloud-based world will become the norm. All thanks to a welcome push from an unthinkable source – a little virus originating in China. The question on everyone’s mind at the moment is “Has the demise of the huge brick-and-mortar property assets begun and are we seeing the start of the trend of bigger-is-better being replaced by being-local-and-online-is-actually-lekker?”
Geldenhuys says that the proverbial black swan is likely to hang around in our pond for the next while leaving many tenants under severe pressure to reduce costs or face closure. Landlords will have to think out of the box on how they can provide assistance or relief during this unprecedented and very difficult time. Tenants that fail and close down will certainly increase unplanned vacancies which will not be easily filled in the current market conditions. This is definitely not what the property sector needs at this point in time.
Opinion piece by Abacus DIVISIONS