Real estate investors in Asia Pacific are steeling themselves for impacts stemming from the coronavirus, the threat of which would add to existing economic headwinds in the region.
While it’s too early to know exactly how commercial real estate markets could be affected, the increasingly important position of China on the world stage means economic repercussions are likely, according to a JLL report on the topic.
“The virus is untimely for China given that it’s the start of a new calendar year and the spread escalated during the country’s most important holiday of Chinese New Year in late January,” says Roddy Allan, chief research officer, JLL Asia Pacific. “This has made it more difficult for the Chinese economy to reopen fully.”
The coronavirus virus – which originated in Wuhan, China, in December late last year – has spread globally, with cases reported in Southeast Asia, Europe and United States. In China, factories, malls and tourism have been affected, adding to strains from trade tensions with the U.S. last year.
“The Chinese government understands the central role it plays to keep the global economy stable and has moved swiftly and decisively to manage the fall-out, avoiding a sharp correction,” Allan says.
Adding to the strain
While the final 2019 figures aren’t yet out, Asia Pacific’s gross domestic product likely slid to 5.8 percent last year compared to 6.3 percent in 2018, according to a World Bank report in October, due to the trade war and lower global demand for exports.
While the region’s real estate had a strong showing overall in 2019, rental declines were evident in key markets such as Hong Kong and Beijing.
“Even before the coronavirus crisis, investors were already exercising caution and seeking out sectors and markets which show signs of resilience amid ongoing political uncertainty and a gradual slowdown of the global economy. The outbreak has put this demand clearer into focus.”Roddy Allan, chief research officer, JLL Asia Pacific
While looking to the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 for hints on how markets could perform this year, investors should be cautious on reading too much into it, Allan says.
Mainland China’s economy is nine times larger now than it was in 2003, just before SARS hit Hong Kong in March 2003.
The country is also now the world’s top exporter and the second-largest importer, not to mention the world’s second largest economy; when SARS hit, it was the sixth largest.
Still, Allan foresees the coronavirus having a similar “sharp but short-lived” impact on the region’s real estate investment market.
“The impact on deal volume should be limited if the outbreak dies down in three to six months,” he says.
Transaction volumes may pull back slightly in the first half of 2020 as some investors take a wait-and-see approach and delay deals, but should be back on track by the second half of the year due to accommodating policies.Roddy Allan, chief research officer, JLL Asia Pacific
Retail and hospitality vulnerable
Service industries have been among the first to feel the impact. On the hospitality front, the coronavirus has hit hotels in Hong Kong, Malaysia, Philippines, Singapore and Thailand and Australia, where Chinese tourists are among the biggest groups of visitors. Major airlines such as Cathay Pacific, Singapore Airlines and AirAsia have scaled back flights to and from China.
Retail in China, Hong Kong and Singapore is also expected to feel the impact as consumers avoid crowded places such as shopping malls, while major brands including Nike, Apple and Starbucks are closing outlets across China to prevent the spread of the virus among employees and customers, according to JLL.
“There is no escaping the fact that investor sentiment will be affected in the short-term, but we do not foresee a lasting negative drag on Asia Pacific’s real estate,” Allan says. “Risk premiums will recede once the virus is under control.”
Is There a Silver lining amid COVID-19?
Thinking of the future impact of this pandemic on office buildings, it may have already dawned on many of us that a majority of potential long-term trends and health measures will become permanent work-life features in the times to come.
The time is ripe to embrace Industry 4.0
Traditional brick-and-mortar retail has suffered tremendously, as countries have been implementing effective stay-at-home and social distancing policies to mitigate virus spread, while those worst hit have enacted strict draconian lockdowns
We have entered a time where, seemingly, interconnectedness is the new enemy, staying in is the new going out, and antisocial is the new social. COVID-19 has brought us on the cusp of growing accustomed to new norms and sounded a wake-up call in terms of how we live.
Covid-19 puts flexible space markets under strain
In the wake of operator defaults, landlords will be forced to re-evaluate the role of flexible space in their portfolios.
The global Covid-19 outbreak has had serious negative effects on commercial real estate, including flexible space. Of late, many operators have experienced the flexible nature of the business working against them, as many occupiers have opted to surrender desks and implement work-from-home plans.
Subscribe via Email
3 Reasons to Be Optimistic About the Baht Right Now
Probably one of the most important factors for the rise of the Baht is the continued weakness of the US...
Will Thailand’s plan for quarantine-free tourism set a global trend?
According to the Tourism Authority of Thailand, the quarantine-exemption measures implemented in Phuket will be extended to five other key...
Thailand Approves Latest Economic Relief Package for Businesses
Some 250 billion baht (US$8 billion) was allocated for soft loans while the remaining 100 billion baht (US$3.2 billion) will...
Southeast Asia remains a hot spot for plastic pollution
The use of plastics is deeply embedded in our daily lives, in everything from grocery bags and cutlery to water...
Thailand BOI approves Biotech Projects Worth 2.4 Bln Baht ($78 million)
The biotechnology sector is part of the so-called BCG model (Bio, Circular and Green economy) which the Thai government has...
Diamonds are forever but “James Bond Island” in Phang Nga Bay may not
Thailand’s Department of Mineral Resources will assess the stability of the limestone karst towers, which make up the chain of...