The COVID-19 pandemic has accelerated change in the real estate industry. Throughout 2020, the success of government efforts across the Asia Pacific to contain the spread of COVID-19 has helped limit its impact on local real estate markets. At the same time, however, there is a sense that asset values have been propped up by a combination of transient factors — government support programmes, bank forbearance policies, healthy corporate balance sheets — that are unlikely to last. As the tank runs dry, there is growing conviction among investors that a market correction is inevitable.
A joint undertaking between PwC and the Urban Land Institute, this 15th edition of Emerging Trends Asia Pacific aims to shed light on real estate investment and development trends, and other issues throughout the APAC region.
With future demand for prime office space now thrown into question by a number of competing influences — social distancing requirements, the work-from-home trend, economic retrenchment, and the need for tenants to cut costs — investors have become somewhat gun-shy. The balance of opinion among interviewees across the Asia Pacific was that although employees will work from home more so than in the past (perhaps one day per week), it is unlikely to become a trend to the same extent as is expected in Western markets.
Already a favourite asset class pre-COVID, logistics sector prospects were boosted by the pandemic as online spending soared and manufacturers began creating stockpiles of components they had previously procured on a “just-in-time” basis. Cold-storage facilities are now also seeing strong growth, again due to increasing demand caused by rising ecommerce sales.
The pandemic-induced surge in ecommerce shopping has once again served to accelerate a preexisting trend. But while the long-term implications for brick-and-mortar retail are undoubtedly negative, there are still positives.
As an asset class, residential is favoured by investors during recessionary cycles because — in the Asia Pacific especially — there is usually strong demand, as well as a good track record of mortgage and rent payments.
Like retail, the hospitality sector has been hard hit by the pandemic, in this case by lack of tourists. While there may be some hope in reinventing hotels to focus on domestic tourism, it seems likely the sector is now oversupplied, leading to many assets being sold off and converted to other purposes, such as for-rent residential.
“2020 is a challenging year for all investments including real estate. Due to COVID-19 travel restrictions, there is a significant decline in cross-border investments. But with current liquidity, Singapore's stable market with good quality assets has helped the country maintain its position as the city of choice for investment prospects. With the economic uncertainties leading into 2021, investors will remain cautious. In Asia Pacific, I believe selected asset classes will generally fare better compared to the rest of the world. So investors should be opportunistic when evaluating the risk-return profile.”
Yeow Chee Keong
Real Estate and Hospitality Leader
Tel: +65 9675 0891