Catella sees hope and chances for real estate after Covid-19

According to Catella's latest 'Market Tracker' report, the short term impact of rent payment defaults are likely to lead to loss of earnings and revaluations across the market. While stressing that nothing can be predicted with any certainly right now, the report points out that the longer the lack of liquidity, interrupted cash flows and the additional costs due to the epidemic continue, the greater the negative effects will be. These include falling rents and increased risk premiums. In turn, this will lead to more intensive differentiation between types of property use with more attention being paid to their crisis stability and flexibility. Risk spreads between the different types will therefore increase.

But despite these problems, Catella suggests that “potential value changes offer the ‘buying opportunity of the century’, especially for opportunistic investors. Global RE dry powder capital increased to more than USD 300 bln in 2019, of which a large part can be allocated to opportunistic and distressed asset funds. As soon as they become more active in the market, we see a rising dynamic which will spread to core investors.”

In terms of how each sector emerges from the pandemic, the report argues that logistics, although boosted by the surge in e-commerce activity since the outbreak of the crisis, will also have to adapt to disrupted supply chains. Retail, one of the most seriously impacted sectors due to the forced closures of stores and thus the greater risk of bankruptcies, should experience a sharp rise in private consumption due to the pent up demand once the restrictions are fully lifted. Hotels, another sector suffering from the impact of forced closures, should recover in the second half of the year – but mainly due to domestic tourism. The office market, being more cyclical in nature is therefore more stable than others – but it will nevertheless be impacted by rent deferrals. Residential is more immune to shocks than other segments, being more influenced by long term demographics, and so should remain relatively unscathed. While the development sector, where new projects have been frozen, will find that financing for speculative projects is much harder to obtain.

The report ends on an optimistic note, however: “Megatrends such as urbanisation or digitalisation are shaping the market too strongly. In the coming months, the market will also experience a new efficiency dynamic. We dare to assert that a relatively rapid recovery will set in again on the central real estate markets.”