UNDERSTANDING WORLD REAL ESTATE IN YEAR 2020
THIS YEAR THE IMPACT OF THE PANDEMIC WAS AMPLY EVIDENT ON EVERY COUNTRY’S REAL ESTATE MARKET INFLUENCING DEMAND, SUPPLY AND SALES ACROSS REALTY SEGMENTS. THE RISKS AND OPPORTUNITIES THAT LIE AHEAD HIGHLIGHT TRENDS THAT WILL BE SEEN IN THE POST PANDEMIC WORLD. COVID-19 is unprecedented in its impact on so many sectors, effectively shutting down entire businesses for months. However, the damage was not uniform, across geographies or even business segments. World economies witnessed enormous short-term changes, yet there is a degree of optimism for the future. REAL ESTATE EUROPE 2020 Europeans remain resolute in their belief in real estate as an attractive investment asset class despite strong political and economic headwinds. Despite political uncertainty and rising construction costs, investors are drawing a significant amount of comfort from the central banks’ decision to maintain or cut interest rates – a notable change in direction from last year. With interest rates set to stay lower for longer and bond yields in many European countries in negative territory, real estate income will retain its broad appeal to investors. Equity and debt are also expected to remain plentiful for most real estate sectors, the notable exception likely being retail which is still struggling in the face of online competition. With a number of real estate sectors undergoing significant structural change, many regard investing in housing and hotels as a defensive strategy at this point in the cycle, supported by long-term urbanization and demographic trends. The industry believes that the enhanced complexity and operational risk that comes from embracing the ultimate end-user and their evolving demands is one worth taking to achieve target returns. There is a blurring of sector boundaries as part of a bigger investment picture in which mixed use assets, improved transport connectivity, greater use of technology and smart mobility solutions are all seen as integral to the economic growth of Europe’s cities and the investment potential of its real estate. REAL ESTATE ASIA-PACIFIC 2020 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. In terms of capital flows, 2020 has seen a steep decline in year-on-year transaction volumes. This partly reflects the impact of border closures preventing buyers from travelling, and partly the fact that sellers are refusing to discount asset prices in the hope that markets will quickly rebound once a vaccine is delivered. Cross-border capital flows are down, although significant activity has been registered in South Korea and Japan, as investors adopt a flight-to-safety mentality and seek out markets with deep domestic demand that are less affected by geopolitical risk. This year’s investment prospects show an ongoing preference for regional gateway cities that offer liquid, stable markets, together with reliable sources of domestic demand. Singapore remains the top investor preference, with Tokyo and Sydney as second and third respectively. There is a sense that asset values have been propped up by a combination of transient factors in APAC markets - 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. REAL ESTATE US & CANADA 2020 With a greater emphasis on health and safety, the need for lower density environments and more space has only grown. COVID-19 is accelerating suburban growth, especially in the Sunbelt markets. Remote work and higher taxes in large cities due to declining tourism and business tax revenue are contributing to the shift away from an urban core. Most anticipate overall real estate prices to fall 5-10%. COVID-19 has also accelerated the housing disparities in the US as many low income workers experience unemployment and possible eviction. Industrial properties, data centers and single-family homes are rising in value, while retail and hospitality are witnessing the largest decline. The next few years promise to be “retail’s great transition period,” as demand for larger retailers and department stores dwindles in favor of discount stores, fast fashion and online retail. Real estate taxes, generally the largest source of local government revenue has declined as hotels and shopping centers (and potentially offices) lose tenants and value. Long term revenue declines will affect all government services but could be particularly impactful on infrastructure investments in USA and Canada. REAL ESTATE MIDDLE EAST & UAE 2020 UAE & MENA Real Estate Market players are optimistic about the residential real estate market, and the majority believe that monthly rental contracts will become more common post-Covid-19. While, there is a splitting opinions around the growth and decline of the commercial office market. High-tech infrastructure, mixed-use complexes and a flexible approach to work environments and rent are among the factors that are ensuring commercial real estate growth. With global lockdowns reshaping consumer behaviour, the retail market has taken a large hit during the pandemic, but traditional retail market will still remain vital – even with the continuous growth of online retail. The hospitality sector had the most impact on generating FDI and it seems it will recover in the next 1-2 years. Serviced apartments are the biggest predicted growth sector in hospitality. Many believe industrial sector has been an important asset class for generating foreign direct investment (FDI), especially in the UAE. Though, warehousing and data centers are key real estate assets for the MENA region, Dubai and Abu Dhabi have seen the highest levels of industrial real estate growth. With the UAE & MENA economy built around a workforce significantly filled by foreign talent a decline in expatriate population had a detrimental effect on the region’s overall economy. REAL ESTATE AFRICA 2020 Real estate had emerged as an opportunistic market across Africa over the past decade. In light of COVID-19, continent-wide investment in real estate has been significantly impacted but technology has taken centre stage in leapfrogging infrastructure deficits. The need for Africa to be self-sufficient through industrialisation has becomes more apparent in the light of Covid-19. Africa’s affordable housing challenge, with the current deficit standing at a staggering 56 million housing units across different cities. Supply chains disruptions have been experienced across the world and Africa continues to be greatly impacted by the global shutdown, which is affecting the majority of its trading partners. Kenya, for example has reported a 5% to 10% increase in the cost of construction materials as a result of supply shortages from China due to the coronavirus embargo. Ethiopia, Egypt, Nigeria and Côte d’Ivoire as emerging investment hotspots for the next decade based on a nightlight analysis. Despite the current economic downturn, Africa’s growth continues to have a strong justification based on its demographics. While office, residential, retail and industrial remain the go-to sectors for African real estate investors, demographic shifts mean that affordable housing, education, healthcare and agriculture are emerging as real opportunities. Sources: PwC & Urban Land Institute, Cityscape, Knight Frank
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