Bleak outlook continues for retail landlords: Citi

The finding was “not totally surprising”, Citi analysts David Lloyd, Adrian Dark and Suraj Nebhani wrote in a research note on September 27.

But the bleak revisions of retail earnings estimates may not have bottomed yet, thanks to a mix of factors including slowing wages growth, escalating living expenses, declining savings ratio and rising mortgage rates.

“Sector specific factors including downtime from remixing, decelerating store roll-outs or store closures, and fixed rental bumps greater than sales growth continue to indicate EPS [earnings per share] risk is skewed to the downside, in our view,” the Citi team wrote in the research note.

“Westfield is where we view greatest downside risk to consensus.”

Whereas real estate trusts exposed only to office and industrial assets all had positive revisions, the Citi research found.

”We view earnings revisions as a key indication of a stock’s potential relative performance.”

Domain Group chief economist Andrew Wilson said the strong performance of the logistics and storage sector was fuelled by the rise of online shopping.

“We are starting to see other factors that are working towards increasing warehouses and particularly the end of traditional, bricks-and-mortar retail,” he said.

“It’s been happening for a while, but it’s probably now accelerating because what we’re seeing are big players come in to the market, and that’s Amazon.

“Increased demand for logistics and storage is set to continue to thrive.”

Vacancy rates in the Sydney office market are projected to fall while rents will increase, the latest m3 property report found.

“Prime leasing demand continues to be strong, but net absorption is likely to be low over the short- to medium-term due to reduced availability of contiguous office space,” the report found.