Will Covid-19 change the 2020 real estate outlook?

Covid-19 is a risk to economies and real estate markets. However the impact is not likely to be permanent if it is contained.

25 Feb 2020

Key highlights: 2020 real estate outlook

  • Coronavirus is a risk to economies and real estate markets, but any impact will be short term if it is contained.
  • See dip in investment activity and share of international capital flows.
  • Interest rate cuts leading to yield falls in some markets, with real estate pricing around average versus index linked bonds.
  • No a big inflation risk and our analysis suggests that real estate offers suitable inflation protection.

2020 real estate outlook

Ample for reasons for property investors in Asia to keep their chins up

2019 ended on a better note than it had been playing out for most of the year. However, Asia is not out of the woods yet, as the full impact of a hiatus in the ongoing trade dispute will not be felt in entirety just yet. Also, there is a high level of uncertainty around the coronavirus outbreak, which has seen global movement of people, services and goods being impacted.

There are ample reasons for market participants to keep their chins up, even as the external environment remains challenging:

  • significant fiscal stimulus headroom for most developed Asia governments. The expansionary fiscal stance adopted by many Asian governments should provide much needed tailwinds for investment, employment and domestic consumption.
  • willingness of central banks to flick the monetary easing switch (rather frequently) in some Asian economies.

The lower for longer interest rate scenario seems to be here to stay in the next year at least, and that has significant influence on capital flows and investment behavior in APAC real estate markets.

2020 real estate outlook

The art of retail operations in Asia (short extract)

Some say the business of retail operations is a more an art than a science. Cynics will offer their two cents' worth, adding that art does not pay for many struggling artists.

To some extent, this is true of the state of retail in most of Asia. Along the prime retail strips and high streets, we continue to see major retail tenants willing to take on higher rents in exchange for brand presence, shopper footfall and spending. We observe this in Tokyo, Osaka, Sydney and Melbourne, where landlords of prime retail continue to play the role of price setters. In less dominant retail assets, or in shopping malls that do not have the same catchment advantage as prime retail, it certainly is an art for operators to reposition their retail offerings to draw in the crowds.

The oft-mentioned strategies include omni-channel retailing, creating more experiential attractions, and setting aside more F&B options, amongst others. While these are all useful, the real art is in the delicate balancing of economic interests with associated costs of these new retail strategies. And, only some landlords will be able to sculpt the shape of their retail performance better than others.

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