• March 04, 2020
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APAC markets present value-buying opportunities, rebound from COVID-19 expected in H2 2020

Real estate markets across the Asia Pacific region, hit hard by the COVID-19 outbreak, are poised for a rebound in the second half of 2020, according to two new reports from global commercial real estate services and investment management firm, Colliers International.

Assuming the spread of COVID-19 peaks in the first half of 2020, the current slowdown presents property investors a window of opportunity to pick up assets at attractive prices, occupiers the chance to negotiate favourable leases and landlords the opportunity to build lasting relationships with clients, the research shows.

"COVID-19 will hit GDP growth across Asia (but less so Australia) in the first half of 2020, and investment property sales may weaken as a result. Nevertheless, if the outbreak peaks in H1, we foresee a rapid recovery in sentiment in H2, offering investors the chance to buy assets at favourable prices now," noted Colliers International executive director of research in Asia Andrew Haskins. 

"The economic pressures created by COVID-19, combined with aborted events, travel bans and enforced home working, may result in reduced office leasing activity in H1 in many markets. From the perspective of property occupiers, this creates opportunities for the more resilient and nimble organisations to negotiate favourable tenancy deals, while others can adopt a 'wait and watch' approach as the situation fully unfolds," Haskins added.

Mainland China market down but not out

In mainland China, which has been particularly hard hit by COVID-19, Colliers expects cash-strapped asset owners may be more flexible on price expectations, giving long-term investors the chance to hunt for bargains now. The global commercial real estate organisation highlights logistics warehouses, since COVID-19 is further boosting online shopping and thus demand for logistics space, as well as data centres, for which mainland China's national work-from-home experiment has boosted already surging demand.

A Colliers survey of over 700 landlords, investors and occupiers in mainland China indicates that overall, landlords are more positive about expectations for 2020 in the wake of COVID-19, as only 29% of landlords expect rents to decline, whereas 45% of tenants are already seeing a decline in business activity. However, certain tenant sectors such as online shopping, online education, online gaming, pharmaceuticals and healthcare are little affected, or may even be achieving sales increases. While a mismatch of expectations exists, occupiers can use this difficult period to forge deeper relationships with landlords, while the more secure occupiers can initiate long-term tenancies.

Hong Kong's significant recovery potential

With sentiment in Hong Kong's property market expected to recover as early as Q2 2020, investors have a chance to benefit from price corrections and acquire discounted assets. Targets for a rebound in Hong Kong include strata-titled office space, en-bloc offices in fringe areas, and hotels, whose prices have fallen about 30% from their peak. Industrial assets for conversion remain stable. 

Hong Kong is going through a steep downturn. However, falling rents and the prospect of a sharp recovery in sentiment in H2 suggest that now is a good time for growth sectors to expand at lower rental costs. Colliers reaffirms their forecast that average office rents will fall by 8% in 2020 (13% in Central), with the decline concentrated in the first half. Although decentralisation is recommended in many Asian cities, Colliers advises large tenants to reconsider Central in Hong Kong, where vacancy rates have risen and rents are falling.

Stimulus-driven revival in Singapore

Singapore's strong policy response to COVID-19 has instilled confidence in travellers and investors alike, reinforcing its safe haven status despite the near-term impact of the outbreak on the hospitality and retail sectors. A significant rebound in H2 is possible. Investors should target hotels, prime CBD offices and city fringe business space for long-term growth.

Singapore has seen modest impact from COVID-19, although occupiers have introduced work-from-home and split operation arrangements. Occupiers are expected to take a long-term view of their accommodation and focus on accelerated technology adoption, wellness certified buildings as well as "flex-and-core" strategy or split office locations. In the meantime, cost-conscious occupiers can find quality office space at good rents in the city fringes.

Liquidity, fixed rents support Japan market

In Japan, COVID-19 has reduced risk appetite and may lead to a temporary fall in new investment. However, Tokyo offices still offer good value with high yields compared to zero-yielding bonds, while low stock of modern logistics warehouses should outweigh high near-term supply, ensuring firm rents. Severe price declines should be limited to smaller, regional hotels, which were facing oversupply even before the hit to tourist travel from COVID-19.

Tokyo's landlords continue to benefit from limited supply and low vacancy rates, while in Osaka, leasing activity ought to slow until supply reappears in 2022. Considering slowing rental activity, Colliers recommends occupiers renew leases as soon as possible and explore flex-and-core strategies to reduce dependence on commuting in line with government guidance.

Australia offers rare medium-term growth prospects

In Australia, the large regional investment market least affected by COVID-19, rental income growth is still contributing to capital value growth in office and industrial property, and the overall market presents an increasingly rare medium-term income growth opportunity. Australia, above all Melbourne, is a global centre of biomedical research, and we advise investors to look for opportunities in biomedical precincts. 

Australia is still seen as a clean, health-conscious country with a world-leading healthcare system. COVID-19 has had minimal impact on the occupier market so far. Given the global uncertainty, some occupiers in affected sectors may pause longer-term occupancy decisions until they have more confidence. As a result, Colliers has noted a modest increase in flexible workspace requirements as a temporary solution.

Re-disseminated by The Asian Banker