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.” 


Tanker off UAE sought by US over Iran sanctions ‘hijacked’

Updated 16 July 2020

Tanker off UAE sought by US over Iran sanctions ‘hijacked’

  • The circumstances of the hijack are still unclear and the boat has been tracked to Iranian waters

DUBAI: An oil tanker sought by the US over allegedly circumventing sanctions on Iran was hijacked on July 5 off the coast of the UAE, a seafarers organization said Wednesday.

Satellite photos showed the vessel in Iranian waters on Tuesday and two of its sailors remained in the Iranian capital.

It wasn’t immediately clear what happened aboard the Dominica-flagged MT Gulf Sky, though its reported hijacking comes after months of tensions between Iran and the US

David Hammond, the CEO of the United Kingdom-based group Human Rights at Sea, said he took a witness statement from the captain of the MT Gulf Sky, confirming the ship had been hijacked.

Hammond said that 26 of the Indian sailors on board had made it back to India, while two remained in Tehran, without elaborating.

“We are delighted to hear that the crew are safe and well, which has been our fundamental concern from the outset,” Hammond told The Associated Press.

Hammond said that he had no other details about the vessel.

TankerTrackers.com, a website tracking the oil trade at sea, said it saw the vessel in satellite photos on Tuesday in Iranian waters off Hormuz Island. 

Hormuz Island, near the port city of Bandar Abbas, is some 190 kilometers (120 miles) north of Khorfakkan, a city on the eastern coast of the United Arab Emirates where the vessel had been for months.

The Emirati government, the US Embassy in Abu Dhabi and the US Navy’s Bahrain-based 5th Fleet did not respond to requests for comment. Iranian state media did not immediately report on the vessel and Iran’s mission to the United Nations did not immediately respond to a request for comment.

In May, the US Justice Department filed criminal charges against two Iranians, accusing them of trying to launder some $12 million to purchase the tanker, at that time named the MT Nautica, through a series of front companies. 

The vessel then took on Iranian oil from Kharg Island to sell abroad, the US government said.

Court documents allege the scheme involved the Quds Force of Iran’s paramilitary Revolutionary Guard, which is its elite expeditionary unit, as well as Iran’s national oil and tanker companies. The two men charged, one of whom also has an Iraqi passport, remain at large.

“Because a US bank froze the funds related to the sale of the vessel, the seller never received payment,” the Justice Department said. “As a result, the seller instituted a civil action in the UAE to recover the vessel.”

That civil action was believed to be still pending, raising questions of how the tanker sailed away from the Emirates after being seized by authorities there.

Data from the MT Gulf Sky’s Automatic Identification System tracker shows it had been turned off around 4:30 a.m. on July 5, according to ship-tracking website MarineTraffic.com. Ships are supposed to keep their AIS trackers on, but Iranian vessels routinely turn theirs off to mask their movements.

Meanwhile, the 28 Indian sailors on board the vessel found themselves stuck on board without pay for months, according to the International Labor Organization. It filed a report saying the vessel and its sailors had been abandoned by its owners since March off Khorfakkan. The ILO did not respond to a request for comment.

As tensions between Iran and the US heated up last year, tankers plying the waters of the Mideast became targets, particularly near the crucial Strait of Hormuz, the Arabian Gulf’s narrow mouth through which 20 percent of all oil passes. Suspected limpet mine attacks the US blamed on Iran targeted several tankers. Iran denied being involved, though it did seize several tankers.