The spread of the novel coronavirus Covid-19 has picked up globally, upending everyday life and placing significant downside stress on financial markets. In times of great uncertainty like the one the world is experiencing right now, Invesco Real Estate reiterates the need for a long-term strategic view.
We have been clear of our strategic positioning before entering this uncertain landscape. This means that we have been:
- Focusing on opportunities where returns are generated from active asset management;
- Recognizing the importance of pro-active asset management, especially in the current period of uncertainty;
- Zooming in on markets or sectors that are supported by a large domestic demand base, as any potential rebound could be domestic led amidst tighter border control and government support policies;
- Identifying specific sectors with structural tailwinds, such as:
- Online retailing as reduced mobility is further accelerating the adoption of online sales;
- Technology solutions to business activities (such as automation of processes, transactions, etc.) and traditional office functions due to stronger demand;
- Various living options supported by market specific demographic trends.
These long-term themes have either been unchanged or reinforced by the current uncertainty, and the current market weakness may suggest we could pursue investment opportunities with more attractive entry prices.
Situation in Asia Pacific is still fluid
As of April 1, 2020, over 111,000 cases have been reported in the Asia Pacific region (including the entire Western Pacific and Southeast Asia regions as defined by World Health Organization), with China, Korea and Australia most affected. Even though China and Korea’s experience in reducing the number of new cases following strict control measures could illustrate how other countries could affect how infection patterns develop, a rising number of new cases in Hong Kong and Singapore raised concerns of a second wave of infections.
Clearly, we are not yet out of the woods, but the pandemic appears, at least for now, a little more under control in the Asia Pacific region. As such, Asia Pacific may point the way for Europe and North America in the months ahead.
Real-estate opportunities may emerge with growing market weakness
According to Real Capital Analytics, real-estate transaction volumes in Asia Pacific in the first 12 weeks of 2020 was 57% below the same period in 2019 (figure 1). While we have yet to see strong evidence of properties being traded at substantial discount due to the outbreak of Covid-19, we expect pressure on values to emerge due to an expectation of falling rental income.