Coronavirus | Redefine questions whether lockdown was necessary as property comes under pressure

Property group Redefine [JSE:RDF] has added its voice to the growing number of JSE-listed companies who say a lockdown may not have been the best route for South Africa to take in its quest to stall the coronavirus infection rate.

The South African-based landlord directly owns retail, office and industrial properties in SA, and also has property investments in Poland, the UK and Australia.

“Some countries did not resort to a lockdown, even with growing infection levels. Therefore, the directors noted that a national lockdown is not an obvious response to the pandemic in any one country,” the company said in its financial results commentary for the six months ended in February.

In the first half of Redifine’s financial year which ended 29 February 2020, there were no confirmed Covid-19 in South Africa. But a few weeks later, the country declared a national state of disaster followed by a nationwide lockdown, which is now its fifth week.

Real Estate Investment Trusts, of which Redifine is one of a handful operating in the country, have borne the brunt of the lockdown as many retailers and restaurants are not allowed to open doors, except for the few that provide essential services. Retailers who are not trading during the lockdown have either deferred rent payments to landlords or offered only a portion of what they usually pay.

Redefine warned that its directors consider a lockdown or severe restriction of movement within a country as a trigger that will have “the most significant impact on the Group’s business and consequently its financial statements”.

The company said while the quantitative impacts of Covid-19 cannot yet be reliably determined, its directors expected a decline in property values and associated revenues. They also expected to grant more rental concessions to tenants or that some tenants will not make it at all while those who remain standing will probably not afford normal rental escalations when their leases are up for renewal.

The group also expect a change in in demand for space, particularly within the retail and office sectors.

“It is safe to assume that given the unprecedented and evolving market conditions, property fundamentals, domestically and globally, are going to be challenged for the rest of 2020 and beyond,” wrote the group.

Redefine’s property portfolio in South Africa had already recorded a marginal increase in vacancy rate of 6{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}, up from 5.6{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in February 2019 before the lockdown wreaked havoc in the market. Office space vacancy rate was more than double that at 12.3{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}, before the lockdown entrenched the trend of working from home which some commentators say will force companies to revaluate whether they really need the space they have been occupying.