Preliminary observations on the potential impact of Covid-19 on Asia Pacific real estate

MACROECONOMIC ENVIRONMENT

• Premature to determine the precise impact until the containment of the outbreak worldwide
• As long as the outbreak lasts,
  • tourism, retail sales and supply chain disruptions are expected
  • fiscal and monetary policies to offset some negative economic impact
• If the outbreak is prolonged, disruptions could be severe

REAL ESTATE MARKETS

• Expect weaknesses in occupier demand as long as the outbreak lasts, but potential impact varies by market/sector
  • Retail, hotels, and serviced apartments to be the most impacted
  • Asia Pacific logistics likely to be the relative winner, particularly temperature-controlled warehouses
  • Markets/sectors with strong fundamentals pre-outbreak more resilient, e.g. China logistics, Japan RE (ex. retail)
  • Markets/sectors with challenges pre-outbreak more vulnerable, e.g. Australian retail, Shanghai office, HK RE
• If the outbreak is prolonged, no real estate sector/market is immune
• Liquidity, covenant, and flexibility on asset strategies are increasingly important as uncertainty remains

INVESTMENT MARKETS

• Some investors could take a wait-and-see view
• The COVID-19 outbreak presents risk, but also potential opportunities
• Good time to look for distress among property owners with liquidity constraint, if available
• Flight-to-safety could widen pricing differences between assets with secured cash flow and those without