How is the Asia Pacific CRE market coping? - 14 APRIL 2020 Three months into the COVID-19 outbreak
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Three months into the COVID-19 outbreak: How is the Asia Pacific CRE market coping? 14 APRIL 2020
INTERESTING TIME
THE WORSENED THE BETTER THE UNKNOWN
Widened lockdown Supportive policy Path of recovery
- - -
Weakened global demand Resumption of business Reset of supply chain
- - -
Rental reduction negotiation Resilience by tech New ways of working / shopping
EPIDEMICS SITUATIONS IN APAC
IS THE CURVE BENDING IN APAC?
Rigorous measures have confined the spread in China and Korea
Cumulative number of confirmed cases, by number of days since 100th case
CASES …EVERY …EVERY
2 DAYS 3 DAYS
DOUBLE
EVERY
DAY
100,000
China
How long does it take for number
of confirmed cases plateau?
South Korea
10,000
China – around 4 weeks
…EVERY Korea – around 3 weeks
Australia WEEK
India Japan
1,000
Singapore
100
0 5 10 15 20 25 30 35 40 45 50
Days Since 100 Cases
Source: Financial Times, CBRE Research, European Centre for Disease Prevention, 9 April 2020.
BUSINESS ACTIVITIES ARE INTERRUPTED IN LATE MAR (GOOGLE MOBILITY INDEX)
While China on its way to resume normal (subway passenger activity)
= Countrywide Lockdown/
Korea
Emergency state in capital cities • Visits to retail space 35%
• Visits to workplace 24%
Hong Kong SAR
• Visits to retail space 35% Japan
• Visits to workplace 24% • Visits to retail space 26%
• Visits to workplace 9%
India Mainland China*
• Visits to retail space 77% • On its way to resume normal, with Beijing’s
• Visits to workplace 47% passenger +16% on Apr 7 compared with
late Mar
Singapore
• Visits to retail space 28% Australia
• Visits to workplace 15%
• Visits to retail space 45%
• Visits to workplace 33%
South East Asia
• Visits to retail space 50%-80% New Zealand
• Visits to workplace 20%-50% • Visits to retail space 91%
• Visits to workplace 59%
Note: Google’s mobility index extracted from Google’s COVID-19 Community Mobility Reports, as of 29 March 2020, the baseline
for prior outbreak is the median value for the corresponding day of the week during the 5 week period Jan 3–Feb 6, 2020. The
data coverage does not include Mainland of China.
Source: Google, Beijing News, CBRE Research, 8 April 2020.
THE COVID-19 IS ESTIMATED TO BE A WHOLE YEAR DISRUPTION
Oxford economics estimates Recession in 2020 but expected to bounce back in 2021
COVID-19 Disruption
in H1 2020 Forecast
16.0%
Real GDP Growth by quarters y-o-y (%)
12.0%
8.0%
4.0%
0.0%
-4.0%
-8.0%
-12.0%
-16.0%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Australia Mainland China Hong Kong SAR India Japan Korea
Source: Oxford Economics, 8 April 2020.FISCAL POLICIES TO STIMULATE THE ECONOMIC GROWTH AMID COVID-19
As a % of previous year GDP
1200 25%
1000
20%
Stimulus Package (USD billion)
800
15%
600
10%
400
5%
200
0 0%
Japan Mainland Australia Korea Malaysia Singapore Hong Taiwan Thailand India New Vietnam Indonesia
China Kong SAR Zealand
Stimulus package (USD billion) (LHS) % of GDP (RHS)
Source: UBS, The Guardian, Government Announcements, CBRE Research, 9 April 2020.OFFICE MARKET
Q1 SAW THE LOWEST NET ABSORPTION IN 10 YEAR
Asia Pacific Net Absorption
80
Net absorption million sq. ft. NFA
70
60
50
Q4
40
Q3
30 Q2
Q1
20
10
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 FBUSINESS ENVIRONMENT EXPECTED TO DETERIORATE IN H2 2020
Q1. Compared to H1 2020, do you expect the business environment in H2 2020 to be?
Mainland China
Wuhan Lockdown on 23/1
Taiwan
27% Travel restrictions on foreigners on 19/3
Korea
About the same Daegu Causal Lockdown on 25/2
Hong Kong SAR
Stricter restrictions on 25/3
22% Vietnam
Better National Lockdown on 1/4
India*
National Lockdown on 24/3
Australia
51% Closure of non-essential business on 23/3
Japan*
Worse Declared a state of emergency on 7/4
Singapore*
Closure of non-essential business on 7/4
0% 20% 40% 60% 80% 100%
Better About the same Worse
*Note: Japan and Singapore introduced stricter restrictions after the survey was completed. A decision on whether to extend the
lockdown in India will be made the weekend of April 11-12. These developments may cause some respondents to further adjust their
Source: Asia Pacific Occupier Flash Survey, CBRE Research, April 2020.
business outlook for H2 2020.REVENUE SET TO CONTRACT IN 2020 BUT BY A RELATIVELY MILD
MAGNITUDE
Q2. By what percentage do you expect revenue to grow or contract in 2020?
40% Technology and
65% OF RESPONDENTS EXPECT
Telecommunications
35% REVENUE TO CONTRACT
Manufacturing
30%
25% Healthcare and Life Sciences
20%
Professional Services
15%
10% Real Estate
5%
Retail
0%
Grow more Grow 10- Grow Flat Contract Contract Contract
Banking and Finance
than 30% 30% below 10% less than 10-30% more than
10% 30%
0% 20% 40% 60% 80% 100%
Grow Flat Contract
Source: Asia Pacific Occupier Flash Survey, CBRE Research, April 2020.SITE VISITS AND EXPANSION PLANS HAVE BEEN PUT ON HOLD
Q4. How have your real estate leasing decisions been impacted by the COVID -19
outbreak?
Site visits have been delayed/cancelled 36% 64% FOR LIFE SCIENCE OCCUPIERS
Expansion/new set up plans put on hold 35%
27% FOR OCCUPIERS IN CHINA
Not at all 33%
40% FOR TMT TECH OCCUPIERS
Relocation plans have been put on hold 26%
Capex for fit out has been reduced 23%
Renewals have been delayed 20%
Source: Asia Pacific Occupier Flash Survey, CBRE Research, April 2020.TENANTS AND LANDLORDS ARE BEGINNING TO REVIEW LEASE
AGREEMENTS
Q5. Have you held discussions with landlords on any the following aspects of lease
agreements?
Responses by market
No discussions have taken place 49%
0% 50% 100%
Japan
Negotiated rental reductions 36%
Korea
Singapore
Requested rental holidays (For existing tenants) 24%
Taiwan
Australia
Requested longer rent-free periods (For new lease) 17%
India
Vietnam
Requested fit-out subsidies 14%
Mainland China
Used flexible space provided by landlords 2% Hong Kong SAR
Source: Asia Pacific Occupier Flash Survey, CBRE Research, April 2020.FOCUS ON TECHNOLOGY AND FLEXIBILITY TO STRENGTHEN
IN LONG-TERM
Q 7 . To w h a t e x t e n t d o y o u e x p e c t t h e r e t o b e a s h i f t i n l o n g - t e r m o c c u p i e r s t r a t e g y
in the following areas after the COVID -19 outbreak?
Investment in technology to support remote working
Adoption of flexible working
Preference for buildings with WELL/Green features
Use of coworking space or serviced offices
Density of office space
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Asia Pacific Occupier Flash Survey, CBRE Research, April 2020.
Increase No change Decrease0%
2%
4%
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
Bangkok*
Bangalore - ORR
Source: CBRE Research, April 2020
Gurgaon - Core
*Note: Forecast was back to Feb 2020
Taipei
Ho Chi Minh City*
Tokyo
Hanoi*
Seoul CBD*
2020F (As of Apr)
Mumbai - ABD
Guangzhou
SLOWER RENTAL GROWTH IN Q1 2020
Beijing
Shenzhen*
Melbourne
Perth
YTD Change in Rents in Q1 2020
Shanghai
Auckland
Sydney
Brisbane
Singapore
Hong Kong SARRETAIL MARKET
RETAIL SECTOR TO SEE VARIED PATH TO RECOVERY
Most impacted
GROCERY FOOD AND RETAIL HOSPITALITY TOURISM
CATERING
Strong sales Restaurant Strong rebound in Tap on staycation Wait until lifting of
during reopening in China sales in China opportunities traveling bans
lockdown
Shift towards Still take longer time
delivery services to fully recoverMANY CITIES ARE RESTRICTING TOURISTS AND LIMITING LARGE
GATHERINGS Korea = No Foreign Tourist Arrivals
Hong Kong SAR • Malls and retailers – reduced
operating hours
Restrictions imposed
• Entertainment outlets, gyms, bars –
temporarily closed Japan
• Restaurants – operating at reduced crowd • 2020 Tokyo Olympics postponed
density • Entered a state of emergency on 7 April in Tokyo,
Osaka and five other prefectures, and will last for
a month.
India
• Countrywide lockdown for three weeks China
from March 24 • Gradually resumed to normal
• Malls and retailers have shorter business
hours and reduced density to stay open
Singapore
• Countrywide lockdown for 1-month Australia
from April 7
Restrictions imposed:
• Food delivery/takeaway only
• Bars, entertainment outlets, gyms -
temporarily closed
South East Asia
• Most capital cities have been locked New Zealand
down
• Countrywide lockdown for four weeks from
March 26
Source: Bloomberg, Inside Retail, South China Morning Post, Business Insider, The Business Times, Focus Taiwan, Reuters, CBRE Research, 8 April 2020.REGIONAL TOURISM AND HOSPITALITY SECTOR HEAVILY IMPACTED
Asia Pacific Tourism Spending (US$Bn) Contribution by Mainland Chinese tourists
(2018/ 2019)
150 100%
$116 % of Total Tourist Arrivals
100 % of Total Tourist Shopping/Spending
80%
$56
50 $38
60%
-
US$ Billion
-$2
-$14
(50)
40%
(100)
20%
(150)
(200) 0%
Korea
Japan
Malaysia
Taiwan
Hong Kong
Vietnam
Thailand
Singapore
Australia
-$218
(250)
SAR
2003 2004 2009 2010 2020F 2021F
SARS GFC COVID-19
Note: All the above countries have issued travel restrictions on foreign tourist arrivals
Source: CEIC, Hong Kong SAR - Tourism Board, Japan – Tourism Agency, Taiwan - Tourism Bureau, Ministry of Transportation and Communications, Korea - Korea Tourism Organization, Australia - Australian
Bureau of Statistics, Tourism Research Australia, Singapore - Singapore Tourism Board, Thailand - Ministry of Tourism and Sport, Vietnam - Vietnam National Administration of Tourism, Malaysia - Tourism
Malaysia, Tourism Economics, CBRE Research, March 2020.LANDLORDS HAVE BEEN OFFERING RENT-RELIEF MEASURES
Rent cuts/ rebates
Greater China Southeast Asia
A month’s free Singapore:
rent after Jan 25 and 50% rental rebate for retail,
discounts until end-Mar F&B and service tenants
(Feb to Jul)
50% (Feb - Mar) Singapore:
50% rental rebate on
one-month’s gross rent (Feb)
50% to mainland
Chinese tenants Malaysia:
(Jan 25 – Feb 14) 14-day rental concession to
non-essential retailers (Mar)
North Asia
Vietnam:
“Good-hearted landlords” Rental support of ~30% (Mar)
campaign: over 300 landlords
have cut rents
Source: South China Morning Post, Reuters, Wall Street Journal, CBRE Research, March 2020.WEAK PERFORMANCE IN GREATER CHINA, REST ARE FLAT IN Q1 2020
5%
0%
-5%
-10%
-15%
-20%
-25%
Perth
Brisbane
Singapore
Melbourne
Shanghai
Guangzhou
Hong Kong SAR
Shenzhen
Sydney
Beijing
Taipei
Auckland
2020F (As of Apr) YTD Change in Rents in Q1 2020
Remarks: All markets tracked performance of prime high streets except China, Singapore and Auckland. China Tier I cities tracked the performance of G/F prime shopping centres,
Singapore tracked prime floor while Auckland tracked regional shopping centres.
Source: CBRE Research, April 2020INDUSTRIAL MARKET
INDUSTRIAL SECTOR TO SEE CONTRASTING PERFORMANCE
Most impacted
GROCERY AND FOOD AND GENERAL 3-PARTY EXPORTS
LAST MILE FARM PRODUCE RETAIL LOGISTICS
LOGISTICS
Run in full In high demand Varied disruption Impact from Impact from
capacity from production to domestic shrinking global
Some disruptions on warehouse consumption and demand
cross-border flow operations disruption of
transportation Production
disruptionSLOWER RENTAL GROWTH IN Q1 2020
6%
3%
0%
-3%
-6%
-9%
Brisbane
Shenzhen
Greater Tokyo
Sydney
Hong Kong SAR
Guangzhou
Beijing
Singapore
Perth
Shanghai
Melbourne
2020F (As of Apr) YTD Change in Rents in Q1 2020
Source: CBRE Research, April 2020INVESTMENT MARKET
INVESTORS TURNED WAIT AND SEE APPROACH LEADING TO TURNOVER DROPPED Source: RCA, CBRE Research, April 2020 Note: Investment Volumes of Korea, Pacific and SE Asia are sourced from RCA.
MONETARY POLICY WAS SUBSTANTIALLY EASED AFTER COVID-19 OUTBREAK IN US
The federal funds target rate (%)
(%)
3.5
Forecast
3.0
2.5
2.0
1.5
1.0 COVID-19
Impact
0.5
0.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Federal Reserve, Macrobond, CBRE Research, 31 March 2020.THE COST OF BORROWING HAS NOT FALLEN SIGNIFICANTLY
THE COST
• Recent OFrate
interest BORROWING
cuts are not HAS NOT FALLEN SIGNIFICANTLY
translating to lower borrowing costs. Less Change in borrowing cost compared to Q4 2019
than 30% of respondents stated that they 50%
had observed a decline in the cost of
43%
capital.
40%
• Banks are in better shape than after the
Global Financial Crisis and are still
30%
lending to existing clients. However, they 28%
have turned more selective towards
providing financing, particularly to the
20%
retail and hotel sector. 16%
11%
• Borrowing costs in Australia have risen as 10%
banks factor a risk premium into
commercial loans and adopt a lower LTV 1%
ratio for new loans (50% to 55%). 0%
Increase by 50 bps or Increase by less than Flat / No Change Decrease by less than Decrease by 50 bps or
above 50 bps 50 bps above
Note: The survey was conducted between March 20 to March 31.
Source: CBRE Research, March 2020INVESTMENT ENQUIRIES HAVE MODERATED & PROPERTY PRICES HAVE BEEN
UNDER PRESSURE AFTER OUTBREAK
Change in investment enquiries after COVID-19
Change in property sales asking prices / asset
outbreak
valuation after COVID-19 outbreak
47%
49%
29%
34%
18%
17%
6%
Moderately higher No change / about Moderately worse Significantly worse Flat/No Change Decrease by less than Decrease by 10% or
the same 10% above
Source: CAP RATE FLASH SURVEY MARCH 2020 , CBRE Research, April 2020MILD YIELD EXPANSION IN 2020
2020 Cap Rate Outlook
Country City Grade A Office Shopping Mall
Institutional grade
Core Locations Decentralized Core Locations Decentralized Logistics (Citywide)
Sydney ▲ ▲ ▲ ▲ ▲
Melbourne ▲ ▲ ▲ ▲ ▲
Australia
Brisbane ▲ ▲ ▲ ▲ ▲
Perth ▲ ▲ ▲ ▲ ▲
Beijing ◄► ▲ ▲ ▲ ◄►
Shanghai ◄► ▲ ▲ ▲ ◄►
Guangzhou ◄► ▲ ▲ ▲ ◄►
Greater China
Shenzhen ◄► ▲ ▲ ▲ ◄►
Hong Kong SAR ▲ ▲ ▲ ▲ ◄►
Taipei ◄► ◄► ▲ ▲ ◄►
Tokyo ◄► ▲ ▲ ▲ ◄►
Japan
Osaka ◄► ▲ ▲ ▲ ◄►
Korea Seoul ◄► ◄► ◄► ◄► ▼
Singapore Singapore ▲ ▲ ▲ ▲ ◄►
Gurgaon ◄► ▲ ◄► ▲ ◄►
India Mumbai ◄► ▲ ◄► ▲ ◄►
Bangalore ◄► ▲ ◄► ▲ ◄►
Source: CAP RATE FLASH SURVEY MARCH 2020 , CBRE Research, April 2020WHAT’S NEXT?
THE WORSENING THE BETTER THE UNKNOWN
Rent collection rate Unwind lockdown measures Tick-shaped recovery
- - -
Closure to push up vacancy Resumption of business China-Plus-One supply chain
- - -
Disruption in new supply Establish new best practice Flexible working /
Omnichannel shoppingDISCLAIMERS AND WAIVERS
32THANK YOU
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