Property owners and investors brace for a rocky reporting season

However, they all concede that the past financial year was an off-the-charts roller-coaster ride and this augurs a rocky reporting season.

Overall, ASX200 REITs rose a collective 28 per cent in the 2021 financial year, outpacing the wider ASX200 index, which was up 26.3 per cent.

Macquarie Equities analysts said in a note to clients that given the headwinds facing the retail and office sectors, they expect a more difficult reporting season for large cap traditional rent collectors – with recent lockdowns in Sydney and Melbourne adding to their concerns.

Real estate investment trusts (REITs) usually survive volatility and are seen as safe havens with higher yields than cash, but some sectors have been hit hard.

Retail landlords have lost rent as non-food tenants were forced to close, while offices have been empty and companies have been reviewing their future space requirements.

A boom in e-commerce has fuelled the massive demand increase for warehouses and distribution centres, which underpin industrial property operators and landlords.

Macquarie Equities’ analysts say in a new report that REITs underperformed the market in calendar 2021, but since March many of the losses have reversed, in part driven by a moderation in bond yields.

The analysts say that with headwinds still facing retail and office, they expect a more difficult reporting season for large cap traditional rent collectors. “Office markets are likely to have bottomed,” the note says. “However, with elevated vacancies we find a path to significantly lower incentives as difficult in the short term.”

The analysts expect the push by many REITs into funds management will be rewarded with better security price performance.

Residential conditions will also support developers such as Mirvac and Stockland, driven by expectations of growth in apartment sales.