COVID-19 – Hospitality Update

April 2020

Charter’s Hospitality and Tourism Practice Group, with over 25 years’ experience in the hospitality sector, are available to assist with any advice or discussions in relation to your hospitality property or business to help navigate you through the COVID-19 pandemic.

The outbreak of the Novel Coronavirus (COVID-19) was declared as a “Global Pandemic” by the World Health Organisation on 11 March 2020.  We have seen resultant travel restrictions, public health recommendations and other emergency measures being implemented by many countries, including Australia, leading to global economic disruption. More specifically, the hospitality and tourism industry has been most severely impacted by these restrictions with the Federal Government restricting pubs, clubs, hotels, entertainment venues, nightclubs (along with many other property types) from opening since midday 23 March 2020. It is unknown how long these measures will remain in place. These restrictions will obviously have an enormous impact on businesses operating from the venues, with cash flow virtually reduced to zero while they remain closed but will also impact landlords at these venues who may find their tenant with no ability to continue rental payments.

To support hospitality businesses, the Federal Government has announced stimulus packages available for small businesses (totaling $189 billion) along with the Victorian Government announcing a further $1.7 billion dollars of stimulus to be delivered through refunds of payroll tax, payroll tax deferrals, payment of all outstanding supplier invoices by the Victorian Government, deferral of land tax payments and waiving of liquor licensing fees for 2020. Additionally, a Business Support Fund is to be administered in partnership with the Australian Industry Group, the Victorian Chamber of Commerce and Industry and the Australian Hotels Association and will support larger hospitality businesses not eligible for other stimulus measures as described above.

Further stimulus announcements supporting the hospitality industry are as follows:

  • 28 March 2020: Federal Government announced a moratorium on commercial property evictions for at least six months for tenants experiencing financial hardship due to the economic ramifications of the COVID-19 pandemic. Furthermore, all Australian banks will also suspend loan repayments to distressed landlords on the proviso they do not evict tenants.
  • 30 March 2020: Federal Government announced its $130 billion Job Keeper payment scheme which will provide wage subsidies to around 6 million workers, many of whom are employed in the hospitality and tourism industry. This flat payment of $1,500 per fortnight equates to a full median replacement wage in the sector and allows employees to stay connected and employed while their workplace remains closed. The total amount of government economic support announced thus far is $320 billion dollars (16.4% of GDP).
  • 7 April 2020: Federal Government announced a Mandatory Industry Code of Conduct for Commercial and Retail Leases in Australia which specifies that landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% (and not less than 50%) of the amount normally payable on a case-by-case basis based on the tenant’s reduction in trade during the COVID-19 pandemic period and subsequent recovery period. Deferred rent must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.
  • 16 April 2020: Victorian Government announced a $500 million package to assist commercial and residential landlords and tenants which includes $420 million in land tax relief for landlords who provide tenants with rental discounts (more specifically, a 25% discount on land tax with any remaining land tax able to be deferred until March 2021). The Victorian Government also reiterated the Federal Governments previous announcement of a temporary ban on evictions along with announcing a pause on rental increases for six months.

Despite all the stimulus measures announced, there is still a high level of uncertainty in the hospitality industry as to the length and depth of this shut-down, which then has a consequent impact on market dynamics. With this rapidly evolving situation, it is too early to accurately predict what the impact the COVID-19 pandemic and consequent government restrictions will have on the hospitality property market, however anecdotally, we are aware of market activity slowing, rather than seeing a softening of yield or values. However, we caution that the current market is under a period of uncertainty with conditions changing daily at present.

If you would like to discuss anything further contact Charter’s specialised practitioners from the Hospitality Valuations team.