Optimism tentatively returns – Savills

In the countries surveyed, 19 pct reported a severe negative impact on their real estate markets due to the pandemic – an improvement on the figure of 29 pct in the previous survey at the end of March – while 74 pct felt that the impact has been moderately negative impact (opposed to 67 pct at end of March).

Sentiment is now ‘slightly positive’ in China, where some real estate activity has been able to resume as infection rates are brought under control: retail and office leasing activity rose moderately in the first half of April. Utilisation rates have also increased as more offices and shops are open and people are able to come back to them, although rates remain below normal levels as social distancing continues. South Korea and Vietnam have also benefitted from rapid decreases in infection levels, with both reporting ‘neutral’ market sentiment.

The latest Savills Global Market Sentiment Survey, which took place on April 15th, based on the views of Savills head of research in 31 global markets. Its key findings include:

• Rents remaining unchanged in 60 pct of sectors and countries, rising to 71 pct in the case of offices. In 80 pct of countries retailers are receiving some form of rent relief, with the most common being deferred service charges and changes in payment structures, which is the case in 40 pct of the markets covered.
  
  
• Occupier demand was initially significantly affected, but with the epidemic apparently now peaking in many countries has now stabilised in 42 pct of them with moderate falls in demand reported in 55 pct (down from 70 pct at the end of March).
  
  
• Capital markets are down but also not as substantially as at the end of March. Now 63 pct of countries are reporting unchanged volumes. For logistics properties, 87 pct and 95 pct of countries respectively reported unchanged or increased capital values. Both sectors should continue to be in high demand for the foreseeable future. Over two-thirds of countries reported offices and residential capital values to be unchanged.
  
  
• Government assistance, such as reduced property taxation or temporary bans on evictions, were reported in 59 pct of the countries surveyed.

Sophie Chick, the head of Savills’ global research team, comments: “Since our last survey at the end of March, the number of Covid-19 cases around the globe has more than doubled, but as many countries have reached peaks in the numbers of new infections, some clarity is emerging. Focus is now turning to what happens next, and in a few countries some non-essential sectors have reopened. While many countries remain in lockdown, the long term impact of Covid-19 is yet to be seen. Many believe the world will come out of this a different place. The forced isolation has accelerated the use of technology for communication and enabled flexible working from home. Supply chains have come under scrutiny, which may lead to more on-shoring or near-shoring as manufacturers look to diversify their supply networks, although the price sensitive consumer may mitigate the pace of change. The value of having access to a private outside space or a large public outdoor space is being realised as well as good wifi and a home office. Health and wellbeing, already a focus before the pandemic, are at the forefront of people’s minds. These changes to the way we live and work are all expected to have an impact on real estate markets worldwide.”

According to Mat Oakley, the head of UK and European commercial research at Savills: “We’re seeing the tentative relaxation of measures in some European countries, which is grounds for optimism in the longer term, but overall we’re seeing very cautious activity. Mirroring wider global occupier trends, Europe’s office markets are largely stable, and logistics and healthcare mainly positive, with retail and leisure bearing the brunt of Covid-19’s impact and being on the receiving end of most Government assistance. In terms of investment, activity largely seems to be limited to domestic buyers in their home core markets. We are seeing some opportunistic buyers looking for discounts, but many may find themselves disappointed as we are not seeing a large amount of re-pricing across most sectors.”