Property investors are staying on the sidelines in Asia-Pacific, with a strong recovery unlikely to happen anytime soon, analysts said.
The Covid-19 pandemic and the resulting economic shock has slammed the region’s commercial real estate market. The total value of transactions plummeted by nearly 40 per cent in the year to September, as the number of deals fell by almost a third, according to Real Capital Analytics.
“Everybody is being cautious,” said Desmond Sim, head of research for Singapore and Southeast Asia at CBRE. “We have to say that no one is fully back to normal from Covid-19, as GDP was impacted and the way we work has changed. Certain markets in Asia have been affected gravely, including hospitality, retail and office.”
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Asia-Pacific commercial real estate investment volume fell 48 per cent year-on-year to US$17 billion in the second quarter of 2020, following a 51 per cent plunge in the first quarter, data from CBRE shows. The property services company said the decline was due to lockdown measures and the continued imposition of travel restrictions, both of which inhibited cross-border deals.
Market observers said investors have particularly stayed away from retail investments in markets with extended lockdowns and resurgent Covid-19 cases.
“As [real estate investment trusts], we are always looking for new assets. But we all see that the market has been very quiet, which is mainly due to low rental yields and rising vacancy, ” said Justina Chiu, chief executive officer, Fortune REIT, which currently runs 16 shopping malls in Hong Kong.
Hong Kong’s economy has contracted in the past four straight quarters, marking its worst recession on record. The Covid-19 pandemic since January, as well as months of social unrest last year, have choked tourism and undermined the government’s efforts to revive activity.
Without the power of tourist dollars, Hong Kong has recorded steep declines in retail sales for 18 straight months, according to official statistics. They amounted to HK$187 billion (US$24 billion) this year through July, or HK$26.7 billion a month, compared with an average of HK$36 billion a month in 2019.
“Tenants’ income was gravely affected by Covid-19 and as a result the portion of rents calculated on a tenant’s retail sales dropped sharply,” said Chen Jianping, a property analyst at Credit Suisse. “Meanwhile the basic rent, the fixed part, dipped 24 per cent below the average rent in 2018. As a whole, it has affected landlords’ income for the next one to two years.”
Activity improved in September compared to the previous month, led by mainland China, Hong Kong, Japan, Singapore and Southeast Asia, which have all seen an increase in site visits and inquiries from potential tenants.
“It is very unlikely a full recovery will happen soon as right now most of the markets are still locked by travel restrictions, and consumption is still pretty local, with [people buying only] necessity goods. We really need to wait until travel restrictions are lifted,” Chiu added.
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