The coronavirus pandemic created unprecedented challenges for the global real estate market. As restrictions are loosened and economies start the rebuilding process, the future direction is still uncertain. For the property sector, consultancy JLL reveals the pandemic has “accelerated some trends already in evidence, whereas other trends may reverse”. But it also concedes the recovery will remain hard to predict – particularly as we await the full impact of the shutdown.
The impact of the pandemic on the global market
In the Asia Pacific region, JLL figures show a 26% year-on-year drop in commercial real estate investment for the first quarter of the year. China, Hong Kong, and Singapore bore the brunt of this – investment activity down around 60%. But the effect of the coronavirus, while expected, wasn’t as deeply felt in the South Korean or Japanese markets. And, while investment activity is set to remain subdued in Q2, opportunities are starting to emerge for a strong second half.
Those opportunities are, however, perhaps dependent on the behavioral changes that form a part of what ‘normal’ looks like in the post-pandemic world. In anticipation of a vaccine to see off the lingering threat of the virus, social distancing and other policy decisions will do much to shape demand (and supply). Remote and home-working, for example, will impact future office need – as CBRE’s report into the prospects of Asia Pacific commercial real estate points out.
The reaction of governments and policy decisions
The reaction to the pandemic has, so far, largely been unilateral at the national level. Aside from the European Union, there is no significant or joined-up supranational response. As such, this creates the potential for national and regional sectors to recover at a different pace. And that will no doubt influence investor appetite. But, as economies start to reopen and start to reach pre-lockdown levels, investors are likely to be primed for the opportunities to emerge.
Signs of that economic rebound are now evident, too. On the global foreign exchange market, some of the major currencies are starting to see a resurgence in liquidity. Stock markets also boom, despite prevailing economic concerns. The larger Asia Pacific markets reacted well to a series of government stimulus packages to surge back after great uncertainty in March. In an environment where restrictions are also easing, it is encouraging for real estate investors.
What can we learn from the ‘reopening’ of China?
JLL’s analysis looks to China for signs of what we can expect from the commercial real estate market in the short-term. Not only was China the first place to be affected by the coronavirus and its subsequent restrictions, but it also could be where we see whether (if at all) there is a resurgence of the virus. According to JLL, offices are seeing the return of employees. Logistics, meanwhile, has been one of the most resilient sectors in the commercial real estate space.
There are, of course, challenges too. Retail is exposed to continued social distancing and a rise in eCommerce habits. For businesses with multi-channel sales operations, this is not such a problem. But how that translates into growth opportunities for landlords and investors is not so clear. Another sector set to struggle in the short-term is hospitality, especially with the closure of borders still a feature of some national responses.
Is consolidation the only answer to the question?
Due to the impact of coronavirus on the hotel and hospitality real estate sector. there could be a “huge – probably the biggest – consolidation of hotel assets in the coming decade”, explains Steven Pan, chairman of Taiwan-listed Formosa International Hotels. The consolidation is likely to squeeze investment in hospitality real estate – certainly for as long as borders remain closed and international travel scales back dramatically.
But it is not the only approach, especially in sectors best equipped to rebound quicker. The low-interest-rate environment created by many national governments could facilitate an emergence of new strategies from investors. Real Estate Investment Trusts (REITs) are also in much better shape than prior to the previous financial crash. But the fact remains we are still contemplating what might happen. Lingering uncertainty means there are no proper answers, just theories.