In its first of a series of global sentiment surveys, global property experts Savills, which has over 600 offices around the world, has assessed the initial impact of Covid-19 on transactional and occupier property markets around the world - with 67% of countries currently reporting a moderate negative impact, and 29% citing a severely negative impact.
Paul Tostevin, director in Savills World research team says, “Our survey is based on the sentiment of my research colleagues around the world who are talking to a range of clients on a daily basis. They report that disruption associated with Covid-19 is having a profound impact on global real estate - overall, 67% of countries report a moderate negative impact, while 29% cite a severely negative impact.
“In the short term we expect to see capital values and rents follow the falls seen in transaction activity and occupier demand. Covid-19 remains a near term challenge, but certain trends, such as the shift to online retail and changing working habits may be accelerated. This could have long term implications for markets as a whole.”
'SA market in limbo'
Commenting on the residential property market in South Africa, Dr Andrew Golding, chief executive of the Pam Golding Property group says, “Against the backdrop of a local economy which was already in recession, giving rise to a subdued residential property market, it is theoretically still possible to transact during this lockdown period and our agents are all operating remotely – online and via telephone.
"Furthermore, although transactions underway can still be at least partially processed online, the fact is the market is currently, and understandably, more or less in limbo until the lockdown is lifted and transactions can be processed via the Deeds Office.
"This means that no transfers are taking place, and we also understand that municipalities are not issuing rates clearance certificates, and that the ability to obtain various compliance certificates from service providers whose operations are constrained and/or prohibited by the lockdown may be affected.
“We obviously understand the need to treat this crisis first and foremost as the humanitarian issue it is but as has been considered in other parts of the world, the reopening or even partial reopening of the Deeds Office would bring significant relief.
'Crisis could see pent-up demand'
Commenting further Golding says this situation is going to have far reaching consequences at a number of levels.
“Firstly, it is well documented that the sector, together with finance and business services was the second biggest contributor to overall GDP growth in 2019 (StatsSA) and owning a home is still a major aspiration for a large percentage of SA’s population. Furthermore, the freezing of the industry means that government is precluded from receiving much-needed revenue into its coffers from transfer duty - a significant contributor to SARS - payable from transactions already being processed.
“Secondly, the implications of an industry unable to transact will be broad in respect of individual buyer and sellers, especially in terms of distressed sellers in the current economic recession being experienced in South Africa, as they remain indebted and under significant economic pressure from creditors, who are similarly impacted by the economic environment.
“Thirdly, in terms of the industry itself, the roughly 50 000 property professionals and the associated office personnel who service them will not earn anything on sales during the lockdown as the industry is entirely commission based, the current pipeline is now stuck in the Deeds Offices and new cash flow is non-existent.
“As far as where the market will be post this crisis is really anyone’s guess, but the hope is that there will be pent-up demand from transactions that were already in progress, and there is also likely to significant financial distress post lockdown and this could give rise to a variety of scenarios including the repricing of certain markets, different supply and demand scenarios in different areas and suburbs around the country and added to this the likelihood of a completely different way of viewing properties and transacting online.”
The Savills Global Market Sentiment Survey snapshot:
The survey looked at market conditions across 24 global country markets* from 27 - 31 March 2020 based on the views of Savills head of research in each geography. The key findings of this edition were as follows:
Capital markets: Transactional activity has been one of the most immediate casualties of the disruption caused by Covid-19. Falls in transaction volumes were reported across 62% of all real estate sectors globally. The sharpest falls in activity were seen in retail, with activity reported to be down in 82% of the countries surveyed, and hotels where transaction activity fell in 84% of countries.
Capital values: The impact on capital values is yet to be seen at the same scale, with Savills researchers seeing pricing remaining firm in 51% of all sectors globally. More countries reported office, logistics and residential values as unchanged than they did falling. Retail, a sector already weakened due to structural changes prior to Covid-19, has seen falls in capital values compounded: 82% of markets reported drops. Only in China, Malaysia, Vietnam and Portugal have they remained unchanged. Logistics is a bright spot, with 57% of markets recording no change, or rises, in transaction activity, opposed to the 43% seeing falls. Unsurprisingly, both healthcare activity and values are holding firm.
Debt: The global debt picture is mixed. European and North American countries in particular report of tightening of availability and worse terms, most notably in the US and UK. Availability and terms remain favourable in emerging markets such as Indonesia, the Czech Republic, Taiwan and the Middle East.
Occupier Demand: While many of companies across the globe are working from home, office space demand hasn’t been severely impacted. A moderate fall in demand was reported by 70% of countries and just 13% stated a sharp fall. Demand in the residential sectors has also fallen moderately. The hotel sector however has been hit hardest with 95% of Savills heads of research reporting sharp falls in demand in their countries as international travel and domestic lockdowns prevent visits. Retail is in a similar situation with 74% of countries seeing sharp falls. Logistics and healthcare have bucked the trend. The logistics market in particular is benefitting from increased demand from food retailers. Healthcare, unsurprisingly, is in demand at this time.
Rental Values: The impact of this change in demand is not yet fully realised in rental values which were reported unchanged in 51% of countries/sectors. The exceptions are once again retail and hotels where 30% and 63% of countries reported rental values to have fallen sharply, respectively. Favourable terms for retail tenants were reported in 86% of countries. Just over 50% of countries reported favourable terms for office tenants, and 23% in the logistics sector.
Mat Oakley, head of UK and European commercial research at Savills, says, “In the UK and Europe our experience so far is that under-offer deals have proceeded but most new deals are unlikely to be able to enter the pipeline for several months to come. In terms of buyers, core investors will remain motivated and there’s likely be a surge in demand from opportunistic investors. With all but essential development grinding to a halt, there’s likely to be a future shortage of supply.
“In the occupier markets most exposed are ‘by the hour businesses’ such as airlines and hotels, followed by those who lease by the month – retail and serviced offices. Longer leased assets will be relatively resilient – unless they are exposed to operators of the above and then they will be challenged.”
Print
