Stick or twist? Investors in virus-induced property dilemma

With much of the world now working from home due to the pandemic, investors may begin to look more at residential opportunities, rather than commercial. (AFP)
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Updated 30 May 2020

Stick or twist? Investors in virus-induced property dilemma

  • Change in working habits due to the coronavirus prompts uncertain future in construction, real estate

LONDON: The coronavirus pandemic has emptied offices and shuttered shops but filled warehouses and highlighted demand for work-from-home spaces, leaving investors wondering if they should flee real estate or double down on their bets.

Property has long been a staple of a balanced investment portfolio, favored by pension funds and insurers seeking assets that combine capital value growth offered by stocks with secure income akin to bonds.

But government lockdowns to contain COVID-19 have spurred unprecedented changes in the way billions of people live and work, denting values and rental prospects of malls and skyscrapers and making property investment a far bigger gamble.

“It is unclear whether we will see more demand for real estate because of social distancing, or less because of the home office,” Joe Stadler, head of the ultra-high net worth business at UBS told Reuters, describing the conundrum as a key focus for clients.

Millions of staff are now working from home while online shopping sales reported by Alibaba and Amazon have soared.

Savills is forecasting prime European office rents to drop by between 2 and 10 percent this year, while first-quarter yields on prime European shopping centers have softened by 39 bps to 5.1 percent compared to 2019.

In contrast, demand for logistics real estate could grow by 150-200 million square feet annually for the next two-to-three years in the US, industrial property firm ProLogis said.

And some of the boldest investors are not only sticking with the property asset class but raising their stakes.

Data from alternative assets research firm Preqin showed European focused property funds attracted $13.2 billion from investors between April 1 and May 28, the highest quarterly volume seen since Q4 2017, with one month of the quarter remaining.

Swapping offices and shops for storage and industrial property appears like a simple solution.

But few analysts and advisers are certain that changes to the way the world uses real estate will outlast the pandemic, and radical portfolio shifts now could cost investors dearly.

Asset allocators like Columbia Threadneedle have confirmed “neutral” stances on property, while many of the world’s biggest companies have given mixed signals on their future real estate needs, compounding uncertainty.

Mastercard, Visa and American Express have ruled out rapid returns to the office and may consolidate buildings if staff prefer home-based working.

Others like Exane, part of BNP Paribas, are expanding their offices. Exane last week agreed to lease 40,000 square feet in London from Great Portland Estates for its cash equities business.

A global economic downturn could hurt rental rates and trigger vacancies in some cases but broader market fundamentals remain supportive of careful property investment, analysts say.

With government bond yields trending downwards and even sliding into negative territory, some 15 percent of corporate bonds seeing downgrades and the mass cancelation of stock dividends, investors want income that property could satisfy.

Expectations that $9 trillion of global coronavirus stimulus efforts by policymakers could fuel inflation in 2021 may further boost demand for property, which can hedge against inflation’s hit to bonds and gilts.

And as fears about the longevity of a US stock market rally gather pace, some investors are expected to lock in gains, which could see more cash move into alternative assets.

Given such uncertainty on future cash flows linked to offices and malls, some advisers and investors said residential investment might be the safest bet for now.

UBS said US apartments had the highest average rent collections of any major property type and a 4.2 percent first-quarter vacancy rate was in line with previous quarters.

British insurer Aviva last week said it expected the coronavirus to knock residential values by 12 percent but commercial assets would fall by 15 percent before growth resumed.

“With so many now living, learning, working and playing from home, investing in residential can accomplish multiple objectives,” said Andrew Angeli, head of strategy & research EMEA at CBRE Global Investors.

“Affordable housing is proving cyclically resilient and delivers a positive social impact. Furthermore, tenant-friendly government intervention helps sustain residential occupancy rates and ultimately cash flows. And that’s what it’s all about right now.” 


Saudi Arabia’s 6-point plan to jumpstart global economy

Updated 07 July 2020

Saudi Arabia’s 6-point plan to jumpstart global economy

  • Policy recommendations to G20 aim to counter effects of pandemic

DUBAI: Saudi Arabia, in its capacity as president of the G20 group of nations, has unveiled a six-point business plan to jump start the global economy out of the recession brought on by the COVID-19 pandemic.

Yousef Al-Benyan, the chairman of the B20 business group within the G20, told a webinar from Riyadh that the response to the pandemic -— including the injection of $5 trillion into the global economy — had been “reassuring.”

But he warned that the leading economies of the world had to continue to work together to mitigate the effects of global lockdowns and to address the possibility of a “second wave” of the disease.

“Cooperation and collaboration between governments, global governance institutions and businesses is vital for an effective and timely resolution of this multi-dimensional contagion transcending borders,” Al-Benyan said.

“The B20 is strongly of the view there is no alternative to global cooperation, collaboration and consensus to tide over a multi-dimensional and systemic crisis,” he added.

The six-point plan, contained in a special report to the G20 leadership with input from 750 global business leaders, sets out a series of policy recommendations to counter the effects of the disease which threaten to spark the deepest economic recession in nearly a century.

The document advocates policies to build health resilience, safeguard human capital, and prevent financial instability.

It also promotes measures to free up global supply chains, revive productive economic sectors, and digitize the world economy “responsibly and inclusively.”

In a media question-and-answer session to launch the report, Al-Benyan said that among the top priorities for business leaders were the search for a vaccine against the virus that has killed more than half-a-million people around the world, and the need to reopen global trade routes slammed shut by economic lockdowns.

He said that the G20 response had been speedy and proactive, especially in comparison with the global financial crisis of 2009, but he said that more needed to be done, especially to face the possibility that the disease might surge again. “Now is not the time to celebrate,” he warned.

“Multilateral institutions and mechanisms must be positively leveraged by governments to serve their societies and must be enhanced wherever necessary during and after the pandemic,” he said, highlighting the role of the World Health Organization, the UN and the International Monetary Fund, which have come under attack from some world leaders during the pandemic.

Al-Benyan said that policy responses to the pandemic had been “designed according to each country’s requirements.”

Separately, the governor of the Saudi Arabian Monetary Authority said that it was “too early” to say if the Kingdom’s economy would experience a sharp “V-shape” recovery from pandemic recession.