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Real Estate

Pricing and Asset Resilience in APAC During COVID-19

6 MIN READ July 07, 2020
  That’s a wrap for the first half of 2020, yet most feel like it is still March. After months of quarantine and more than 11 million confirmed COVID-19, the true consequences of this crisis are beginning to unfold across APAC real estate markets. During these unprecedented times, about a third of the world remains in lockdown, which essentially means that a third of the world economy remains without activity. The IMF predicts countries will experience an economic contraction in 2020 and 2021, with an overall loss of US$5-6 billion or 7-9 percent of the global GDP. Along with this economic recession will be the loss of billions of jobs all around the world. 

Although it is known that retail and hospitality have taken the hardest hit as a direct result of the travel restrictions and social distancing norms, how have other assets performed? GRI Club Real Estate India members compared capital demand, stress, pricing and culture asset resilience in the latest eMeeting. 

Halted Cash Flows in the Market 

Comparing retail assets with hotel assets, there is clearly a lot more pressure and stress to have potential sales in hotels during the pandemic as they are currently running at horrifically low occupancy rates, impairing their ability to  generate cash flows that would help service the loans and meet the DSCR tests. Members discussed that some banks are perceived to be turning a blind eye and are continuing giving waivers during the crisis. 

In the short term, for a hotel asset operator it will be difficult  to generate the cash flows. However, looking at it from a long-term perspective, once the pandemic is controlled the sector is likely to rebound but will take some time to re-establish a decent cash flow. Regardless of the asset type or even sector, the bigger concern is on whether there is a slowdown in credit and credit efficiency. The massive stimuli provided by governments might cause inflation in the long term which might not be so helpful for the global economy. Looking at the flow of liquidity in the system, many corporates have raised funds and recapitalized themselves, which has allowed them to build enough cash flow to help it sail through the next 24 months. GRI members do expect some credit dislocations and mirroring the post global financial crisis which might kick in a few months in the current scenario. 

The Challenge of Valuation and Pricing

Valuation and pricing have become a real labyrinth to solve for many assets. For hard assets, valuation is taking longer than usual as it is difficult to filter in all the variables. Some managers have gone from undertaking a quarterly valuation to a monthly valuation, and even on a daily basis for some retail assets to understand cash inflows. Factors that are influencing valuation is the liquidity injected by central banks which have ended up lower cap rates, as well as the decreases in rent. 
The calculation of cap rates themselves pose a challenge as the risk-free rate has substantially gone down as the global risk-free rate has decreased with rate cuts from governments. The question is whether the cut in the risk-free is larger than the increase in the risk premium. In absence of pricing discovery, it is difficult to understand the changes to cap rate. The question is whether On the other hand, the cash flows have shown instances of significant or potentially a permanent diminution of the cash flow. In such a background the valuation is more likely than not expected to go down. 

Members discussed that looking at the outlook in the next quarters, more transactions are expected to close which will provide more certainty on values in the market and where it stands.  With the low pricing discovery and absence of certainty on whether there is a permanent cash flow deterioration or not, industry participants do not expect a significant decrease in valuations. Further on, even if the difficulties persist, industry participants do not believe that it would be led by valuation parameters but rather by cash flows.

If investors were to have one chip in hand to bet in the best recovery investment, where would they place it? GRI members would place their bets on: 
  • Retail in Asia may rebound in the next 24 months
  • Corporate sales and lease back (including hotel assets) in Japan
  • Office assets in developing economies such as Australia and Singapore, especially since Grade A offices in a great location have proven to be a safe bet
  • 4-star hotels in Hong Kong as they would recover the best from the lowest base with steep price discounts
  • Southeast Asian economies would be the largest benefactors of the US-China trade wars

APAC Asset Performance at a Glance 


COVID-19 has pushed the hospitality industry to evolve in order to survive the Great Lockdown. Leaders believe hospitality assets will have to endure arduous conditions for a longer period than other assets as quarantine and sanitary measures remain. Great pressure has been placed on hotel operations in the last months. Hotels with management contracts with another collaborator are sharing the risk and impact resulting in fewer fees and less pressure on P&L statements. Asset owners are currently looking for solutions to alleviate the impact through leveraging or selling assets. Leveraging assets has become more and more difficult to do, making it more likely for owners to create distress asset opportunities in the next months, particularly from smaller operators. 

There have been various distress opportunities in Hong Kong due to both the pandemic and the recent protests. Members discuss that government subsidies should be included in the equation when scouting distressed opportunities. Investors are looking for ways to salvage hotel assets by diversifying the spaces and giving them a second life to weather COVID’s impact. While domestic travel starts to pick up in some countries, operators are offering guests long-term stays and targeting those who have long commutes to reach their workplace. As public transport poses a threat of contagion, people would prefer to stay closer to their jobs and stay in these spaces. Service apartments are also experiencing turmoil as an asset class, however it is expected that once travel kicks up again, it will stabilize. This trend is already taking place in China as people return to offices. GRI Club members believe it will take 18-24 months before the hospitality sector returns to pre-COVID levels.


The pandemic has also battered the retail industry and members believe it accelerated a trend that was already taking place: the penetration of e-commerce. For many this is a period of opportunity that could heal in 2021 with a complete transformation of the sector by 2030. E-commerce has grown at a steady pace in the six years, while the total spending on e-commerce increased by 77 percent in May 2020 alone. This indicates a clear acceptance by consumers and an increase in trust of online sales. Retail assets owners are exploring solutions to make their assets more community-centric and transform them into experiences and a gathering place for people, and not just a place where they buy products. These new retail assets will co-exist with online platforms and generate efficient omnichannel strategies and supply chains. Community-centric retail assets have restricted the cannibalization of e-commerce in wester countries. 

Around the world, some markets that are still in lockdown continue, while others are starting to see a light at the end of the tunnel. Hong Kong’s street-side retail and malls were particularly hurt, while big box retail in Australia has managed to survive.  In Singapore, malls have witnessed a rebound since lockdown measures were lifted in F&B and mid-range apparels. Guangzhou, China has also recorded an increase of US$8 million which is attributed mostly to pent-up demand. 

Members expect for some categories that require more social interaction such as arcades will be further challenged. Movie theaters which attract a significant amount of footfall into malls will also be challenged with social distancing and sanitary measures. In the next few months, there may be changes in the tenant mixes of retail assets and some categories may take up larger spaces than before. Although this sector has been greatly hit by this crisis, GRI members believe that the outlook willn ot be as bad and it will pick up once again.   


The office market has been impacted by various crises, and there seems to always be either opportunities or a feeling that things will never be the same for that sector. There is great speculation in the market regarding the impact COVID-19 will have on office assets due to the fast shift to home office companies were forced to implement. Will remote work kill office spaces? To analyze this trend, GRI members believe that home sizes and commute times will play a vital role. Some millennials are eager to return to the office since they lack a proper work space at home. Nevertheless from the employer’s point of view, here is also great concern regarding productivity and team building at a distance and many believe this will not be possible if there is no physical interaction. 

There are many tech companies throughout the world that have been working under this scheme perfectly fine and others that have made home office a permanent or semi-permanent measure for the rest of the year. In Tokyo for instance, offices are reopening and people are enjoying having physical interaction with their colleagues again. There is no telling what trends and measures will be permanent right now, and there are no clear indications that office assets will be done for. Everybody is waiting for more certainty and for a vaccine to be created, so that normal activities can resume once again. 

Logistics and Data Centers

It’s a good time to be in the logistics and data center asset classes as business continues to grow with the need for delivery and online commerce. Retailers are rethinking their business models, tweaking their just-in-time numbers and looking to acquire additional logistics space to stock up on inventory. Demand for spaces has increased, particularly from grocery providers that now prefer multiple stockpiles and distribution centers rather than just one centralized location which increases the risk of contamination. Although the sector is performing well, It is critical to understand what type of company is backing up that logistics tenant. For instance if it is a retail tenant, they could face difficulties in making the rent due to the impact the pandemic has had on the sector. If e-commerce sales continue to grow, it may create more challenges for commercial leases. The increasing use of web-based platforms such as Netflix and Zoom have also bolstered the demand for data centers. Members shared that data backed users have jumped from 10 million to 200 million in the past three months alone. 

Multifamily and Co-living

In times of uncertainty, the go-to asset class has been multi-family and co-living. This asset class has time and again proven to be the asset class with higher buys. The current health induced crisis has been compared to the credit induced GFC multiple times, which makes it essential to compare the metrics. Comparing the current numbers to the GFC, the rental growth expectations in US markets of apartments is at approximetly 4 percent while it was at -3 percent in GFC, logistics is at 3 percent (-14 percent in GFC), offices at -10 percent (GFC was – 13 percent). For multi-family assets, the expected decline was of approximately 8 percent during the GFC which is currently muted at a decline of around 5 percent with the biggest impacts expected in high luxury and high rises. While the retention has been high, it is expected that this would accelerate as we come out of the COVID period. When it comes to breaking down rental growth, there is an expected growth of 2.4 percent in 2021 which is likely to increase to 5.5 percent during 2022. From an allocation perspective there are expected secular headwinds towards logistics, multi-family and other niche sectors. 

This is a summary of the GRI Club Real Estate India eMeeting: APAC Real Estate - Comparing capital demand, stress, pricing and future asset resilience on June 25. Some of the conversation leaders included:  
  • Moderator : Jae Choi, Head of Capital Markets, ARA Private Funds, APAC, Singapore, 
  • Shigehiro Ono, Executive Director , Mitsubishi Estate Asia Pte Ltd, Singapore 
  • John Saunders, CEO & Head of Real Estate - Asia, BlackRock, Hongkong
  • Sanjeev Dasgupta, Executive Director & CEO, Ascendas India Trust ( a member of Capitaland Group ) Singapore 
  • Laurent Jacqemin, Head APAC Real Assets, AXIS IM, Japan
  • Bart Coenraads, Head Asia Pacific, Global Strategy, Global Partner Solutions, La Salle Investment Management, Singapore  
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