Global commercial real estate markets feel impact of COVID-19

Investment volumes decline sharply amid caution, ongoing uncertainty

11 août 2020

The impact of the COVID-19 pandemic is being felt in global real estate markets, with commercial real estate investment volumes falling across all three regions in the first half of the year.

Direct commercial real estate investment fell 29 percent globally to $321 billion in the first six months of 2020 compared to the year-earlier period, according to data from JLL. The drop came amid widespread lockdowns and travel restrictions that stalled investors’ short-term capital deployment plans.

“Cross-border investment has slowed significantly with travel restrictions, in particular inter-regional investment which declined by 61 percent during the second quarter. Those markets that are more reliant on foreign capital are feeling the effects, resulting in steeper activity declines,” says Sean Coghlan, Head of Research, Capital Markets, JLL.

Investment volumes in the Americas region saw the biggest half-yearly decline, with a 37 percent fall. Volumes in Asia Pacific dropped 32 percent. The EMEA region saw activity fall 13 percent, a relative outperformance due to pre-COVID deals that carried into the first half.

The localized nature of the pandemic has created a distinct divergence among markets, and expectations for a recovery in investment activity for the rest of 2020 will be varied, says Coghlan.

“Activity in the U.S. and Europe will continue to be subdued in the coming months,” he says. “But investor sentiment is beginning to shift toward deal sourcing, and transactional pipelines are beginning to rebuild.”

Broad-based impacts

Capital deployment to funds has slowed. Fundraising by private closed-end real estate funds fell 26 percent in the first half year-on-year. However, capital targeting the sector remains abundant, and the core segment of the market will be the biggest beneficiary in the short-term.

“Private equity investors similarly remain active and are looking for market dislocations and distress,” says Coghlan.

Markets with high transparency and deep pools of domestic capital have proved most resilient to the pandemic so far, as cross-border investors’ ability to carry out necessary due diligence is hindered by travel restrictions.

Japan, Germany and South Korea all outperformed the broader market in the first half of the year, according to JLL data, with Japan registering a seven percent increase in investment year-on-year. Germany dropped just 1 percent and, despite sliding 15 percent, South Korea outperformed its long-term, first-half average.

“As transactional activity begins to recover, these dynamics will continue to lead the real estate out of the market correction,” Coghlan says. “Early signs are beginning to emerge in parts of the U.S. and France.”


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“As institutional investors took a step back to assess risk, pockets of capital have been emerging, with private local investors and high-net-worth family offices from the Middle East, Hong Kong, Singapore and the U.S. emerging as new sources of liquidity,” he says.

In line with broader equity markets, REITs suffered in the first part of the year, with total returns across eight major global REIT indices hitting their low point in March. Since then, all REIT markets have recovered some of their losses, but remain firmly in negative territory with total returns averaging a decline of 24 percent as of the end of the second quarter.

 “While public valuations serve as a useful benchmark for the markets, they are not reflective of private market values due to differences in liquidity and risk premiums, among other factors,” says Coghlan. “A bid-ask spread is evident in the markets, and price discovery remains underway.”

Defensive strategies benefit some sectors

As investors pursue more defensive strategies amidst ongoing economic uncertainty, sectors that have proved operationally critical throughout the pandemic have benefitted, particularly industrial, multifamily, and select alternatives sectors such as data centers.

The focus on supply chains and the growth of e-commerce during lockdowns has spurred greater interest in the logistics sector globally. This was reflected in investment activity, with the sector’s investment volumes dropping only 13 percent in the first half of the year, according to JLL data.

The multifamily sector has been another beneficiary with enduring issues around housing supply and affordability in many major global markets continuing to support investment appeal. Investment was down 24 percent relative to an active H1 2019, according to JLL data.

Mirroring this trend seen in the private markets, REITs focusing on industrial and logistics, data center and net-lease properties have been the most resilient, while those with portfolios that are heavily concentrated in retail and hospitality continue to see significant discounts.

“This is something that we expect to see continue,” Coghlan says. “All eyes are firmly on the rest of 2020.”

Contact Sean Coghlan

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