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TRD Insights: Commercial real estate investment in Asia hit hard by Covid-19
Korea and Japan were bright spots; Q2 should bring more clarity
Real estate investors in Asia have spent a few more months than their U.S. counterparts factoring the impact of coronavirus. For most part, their response has been to pause.
Commercial real estate investment volume in the Asia-Pacific region fell to $22.6 billion in the first quarter of 2020, according to a report from CBRE. This represented a 23 percent decline from the same quarter a year before, and the slowest quarter in nearly three years.
“The decline in transaction volume was widely expected as investors moved into wait-and-see mode, delayed investment decisions and site inspections, and other phases of the deal process were disrupted,” the report says.
Hotel and retail investments took the biggest hits, declining by 14.3 percent and 45.8 percent, respectively. Industrial investment held steady, while office investment even rose slightly compared to the first quarter of 2019.
Coronavirus Impact on CRE Investment in Asia by Sector, Q1 2020
| Sector | Year-over-Year Change |
|---|---|
| Office | 2.5% |
| Industrial | -4.0% |
| Retail | -45.8% |
| Hotel | -14.3% |
SOURCE: CBRE Asia Pacific Research
By country or region, Hong Kong — whose real estate market had already been shaken by mass protests last summer — saw investment volume plunge 72 percent. Fewer than 20 deals closed, all by local investors. Australia also saw a big drop — 50 percent — as the country approaches its first recession in almost three decades.
Coronavirus Impact on CRE Investment in Asia by Country, Q1 2020
| Country | Year-over-Year Change |
|---|---|
| Mainland China | -32% |
| Hong Kong | -72% |
| Singapore | -30% |
| Australia | -50% |
| South Korea | -13% |
| Japan | 30% |
In South Korea, big deals by local investors in January — as well as that country’s dogged response to the epidemic — helped limit the decline in volume to just 13 percent, while Japan actually saw volume rise 30 percent. Because Q1 figures reflect deals that were in progress in late 2019, the numbers for Q2 may give a clearer picture of the impact of the pandemic, the report notes, and volume is likely to remain low in the near-term.
Nevertheless, CBRE said it expects a quick rebound once the virus is contained. “Investors retain a healthy appetite for Asia-Pacific real estate, underpinned by its attractive and steady long-term risk-adjusted returns compared to equities and bonds.”
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