The coronavirus outbreak has caused disruption across asset classes, and real estate capital markets are by no means immune. Although it could take several months for data showing the true impact of the virus, over the short term, investment activity is expected to slow.
Assuming the outbreak peaks in the first half of the year, there will be a rapid recovery in sentiment in the second half of the year, offering investors the opportunity to buy assets according to a new report by Colliers International.
Titled “Covid-19: Impact on APAC Real Estate Capital Markets”, the report focuses on five countries: China, Hong Kong, Singapore, Japan and Australia.
In China, Colliers has highlighted the logistics warehouses segment. It points out that the pandemic has further boosted online shopping and thus demand for logistics space, as well as data centres for which demand is surging.
A 31 billion yuan (US$4.43 billion) investment by Hongkong Land in Shanghai already shows some key real estate players are looking beyond the likely downturn. Hongkong Land, 50 per cent owned by Jardine Matheson, announced the purchase of the site in the Xuhui West Bund district in February.
The site will be used for a mixed-use development with an estimated gross floor area of 11.7 million sq ft. It is due for completion in 2027. This is a major vote of confidence in Shanghai, and shows the potential for a recovery in investment levels from the second half of 2020.
In Hong Kong, which has had negative real interest rates ever since the global financial crisis of 2008/09, the pandemic may further depress leasing demand and office rents in the first half of the year but a rebound is expected in the second half of 2020. Colliers highlights investment opportunities in en-bloc offices in fringe areas and hotels, whose prices have fallen about 30% from their peak. Industrial assets for conversion remain stable.
In Singapore, the regional wealth hub, investors should focus on long-term demand drivers. Hotels, prime CBD offices and city fringe business space offer long-term growth. The country's strong policy response to COVID-19 has instilled confidence in travellers and investors alike, reinforcing its safe haven status.
In Japan, Tokyo offices still offer good value with Asia’s widest spread over bonds, while low stock of modern logistics warehouses should outweigh high near-term supply, ensuring firm rents. Conversely, Severe price drops are likely to be limited to hotels
Australia is the large regional investment market that has the lowest impact from COVID-19. Income growth helps drive capital growth for office and industrial property. Australia, above all Melbourne, is a global centre of biomedical research, and the consultancy advises investors to look for opportunities in biomedical precincts.
Colliers International (NASDAQ, TSX: CIGI) is a leading real estate professional services and investment management company with operations in 68 countries. In 2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in its investment management segment.