How global market sentiments are affecting Asia Pacific

Occupiers are dramatically adjusting their behaviour to new ways of living and working which have altered market fundamentals. Investors have paused to take stock of conditions and deal volumes have fallen. Not all sectors and geographies have been impacted equally though, and the market is already planning ahead for recovery.

The results of the Savills Global Market Sentiment Survey are a strong market indicator as to the diversification and resilience of the property sector with overall, 67 percent of countries reporting a moderately negative market impact attributed directly to Covid-19, while 29 percent cite a severely negative impact.

What we’re seeing at a sector level

At a sector level, healthcare, logistics and to a lesser extent institutional and residential are currently the most resilient across occupier demand and investment activity. The surge in demand for online retail and the defensive benefits of investing in beds underpin these segments.

Retail, already undergoing a structural change, has seen its woes amplified by the virus. Hotels meanwhile have felt an immediate impact from the international travel restrictions and domestic lockdowns.

In positive news, many of the Asian markets are re-emerging as containment policies are relaxed and it is symbolic that all Savills offices in Greater China and Hong Kong are fully open for business again.  

eCommerce firms are thriving as the online environment attracts more patronage after the social unrest and more recently because of the need to limit social contact a trend which we believe Australia will follow.

There should be more office demand from such businesses involved in providing a wide range of services from shopping and tutoring to social media. In addition, some companies have taken advantage of the market adjustment to actively explore more diversified leasing options, especially companies who already intended to relocate.

With the return to work in Hong Kong, developers are seeing the current crisis as an opportunity to kick start redevelopment projects with a number of industrial sites transacted during the quarter.

Despite the generally downbeat retail and trading news recently, investors and developers are being attracted to industrial and logistics assets for both their defensive characteristics as well as their longer-term growth potential.

Furthermore, industrial sites and redevelopment opportunities are attracting plenty of interest and many developers are eager to replenish landbanks.

Positive results continue

Despite challenging market conditions, the Savills Investment team has concluded HK$12.8 billion of real estate deals since January 2020, including:

The Cobalt Centre and Belle Tower transactions for HK$790 million and HK$640 million respectively, which caught the attention of both local and overseas investors and it is believed that they will become iconic buildings after redevelopment.

Residential transactions include single lot houses on No. 92 Repulse Bay Road (HK$550 million) and No. 21 Po Shan Road (HK$350 million) and development site transactions of 2A-2C San Lau Street & 26 Ko Shan Road (HK$350 million) and No. 37 Cameron Road (HK$450 million).

Savills also concluded several significant cross-border transactions over the first quarter. In China, we brokered LG Twin Towers in Beijing, China, and another project with two land sites and several commercial buildings in Jiangyin, China (RMB 473.5 million).

This global pandemic is certainly not specific to one particular market and as a result, our business continues to see transactions progress at this time, albeit ad-hoc and quite diverse in nature.

A number of cross-border transactions with our Hong Kong office including 1000 Nepean Highway, Moorabbin, Melbourne VIC (AUD$21.8 million) and Circle on Cavill, 3184-3186 Gold Coast Highway Surfers Paradise, QLD (AU$61.8 million), highlight that there is still significant interest in all asset classes.  

Future outlook

Broadly speaking, whilst there may be many reasons to not proceed with a transaction, there are just as many reasons to get one done, such as less competition, high yielding given low debt environment , producing cash-flow with strong covenants, supply chain reform and future and current storage requirements, and planning for your future footprint in the office occupational environment.

We are confident that the Industrial and Logistics sector will follow closely behind Hong Kong and China and we will see investors and developers being even more attracted to industrial and logistics assets for both their defensive characteristics as well as their longer-term growth potential, redevelopment opportunities and vastness of their land holding.

Around Asia Pacific and in Australia, while volumes are down, we are not seeing any real movement on capital values especially in the office sector. Deals are still happening; it just requires everyone to work a bit harder. Logistical issues and social distancing are often providing a buyer more time than usual to close, which is well received.

Key Global Statistics

• Transaction activity is falling in most sectors globally with the sharpest falls reported in retail and hotels
• Capital values are lagging behind transactional activity, with 51% of countries/sectors reporting capital values to be unchanged
• Rents still remain largely unimpacted, just over half of countries/sectors reporting them to be unchanged
• Terms for occupiers are currently favourable, particularly in the case of retail
• At a sector level, healthcare, logistics and to a lesser extent institutional residential are currently most resilient across occupier demand and investment activity
• Logistics is a bright spot, with 57% of markets recording no change, or rises, in transaction activity, opposed to 43% seeing falls
• While many companies across the globe are working from home, office space demand hasn’t been impacted as severely. A moderate fall in demand was reported by 70% of countries and just 13% stated a sharp fall

Learn more in Savills Global Market Sentiment Survey.