Office Markets Around The World Face Protracted Recovery

GLOBAL – Many parts of Asia have been unshackled from COVID-19 lockdowns during the past few months, but commercial property transactions are still far below pre-pandemic levels, reported BloombergQuint on Thursday afternoon (19 November, SGT).

Even in markets that are seeing good progress against the virus, property investors are still cautious and are taking it slowly.

Based on data from Real Capital Analytics, commercial real estate investments across the world only reached US$128 billion in Q3. Apart from seeing little change compared to the previous 3 quarters, the figure is the weakest level since early-2012.

“There’s no forced sellers and buyers are expecting discounts. Activity won’t recover until buyers and sellers align,” said Real Capital Analytics’ London-based economist Simon Mallinson.

On an annual basis, Q3 transaction volume by value declined by 59 percent in North America, 37 percent in Europe, and 27 percent in Asia, according to property consultancy CBRE.

“Overall, we expect the real estate recovery, particularly the office sector, to lag the broader economic recovery by several quarters,” stated CBRE’s Global Chief Economist Richard Barkham in a note published on 12 November.

The sluggish deal-makings in Asia and across the globe despite the relaxation of COVID-19 restrictions in many countries indicates that office markets have to cope with a slow and protracted recovery even though positive news on the vaccine raises hopes that it would be safe to return to the workplace.

For instance, lending for commercial and multifamily property in the United States is expected to remain below pre-pandemic levels at least until 2022. For 2020, new loan volume slumped 34 percent year-on-year, data from the Mortgage Bankers Association revealed.

Fundraising across the globe also more than halved to US$21 billion during the third quarter, as many property investors refused to commit money, according to capital markets firm Preqin.

“The property market as a whole continues to be in the doldrums,” wrote Preqin’s Head of Asia operations Ee Fai Kam in an email.

Nonetheless, office assets still make up the largest share or around 33 percent of the global commercial property transactions in Q3. This is followed by multifamily properties (24 percent), industrial (20 percent), retail (13 percent), and hospitality assets (3 percent). In Asia, office deals accounted for over 50 percent.

BlackRock Real Estate’s Managing Director and Asia Pacific Head, John Saunders, pointed out that new leasing has resumed for offices in Sydney, Tokyo, and Shanghai, where COVID-19 cases have significantly fallen.

The number of offers he has reviewed has also increased as owners consider selling their office space or are under pressure to raise capital. However, he believes that it’s not yet the opportune time to acquire office premises.

“I think smart money is being very patient. Buying tomorrow is going to be much better than today,” said Saunders in an interview by phone.

Major multinational companies are not sure how much office space they will require as working from home becomes more prevalent, and this uncertainty is making it complicated to value commercial property, particularly when new lockdowns are occurring in the West.

“It’s almost feeling like we’re back to square one,” said Carly Tripp, who is the US Chief Investment Officer for Nuveen’s property arm, which oversees manages US$127 billion in assets across the world.

Meanwhile, the situation is different in Asia. In China, where COVID-19 originated, shopping and domestic travel have restarted. In fact, Nuveen’s jointly owned shopping centres there have seen record high sales. Office workers have also returned to the firm’s buildings in the region as working remotely from home is not easy due to tiny dwelling space, and there’s a cultural preference to go to the office.

“Showing up every day is really important to progressing your career,” noted Tripp.

However, valuations of Grade A offices in Hong Kong could fall by about 20 percent in 2020, added real estate consultancy JLL.