Multibillion-dollar commercial real estate investment activity in Australasia will slow over this year's first half due to the effects of coronavirus, an expert report says.
JLL has released a report saying uncertainty will filter through to investors in the immediate term. They will apply more due diligence and extend transaction timelines, JLL says.
The report, Covid-19: global real estate implications, says business contingency planning is of the utmost importance. Corporate occupiers, capital markets, the hotel and hospitality sectors, industrial and logistical sectors, office markets and residential are all affected.
"Our current base case is guarded. The further the outbreak widens and the longer it persists, the greater the chance of a more prolonged impact on the global economy and by extension, real estate markets," the report said.
It is currently difficult to separate the current and likely impact from the "fear-gripping news sources and financial markets".
In New Zealand, sales of major commercial, retail and industrial properties peaked in 2018 at around $5.8 billion, JLL said. In Australia, that figure was A$35.4b.
JLL could not pick the long-term impact of the pandemic so suggested business adopted "a planning approach with a focus on preparedness for either a mild to moderate slowdown that is transitory in nature, or for a more severe and sustained slowdown".
For corporate occupiers, the health and wellbeing of employees was the initial primary concern, followed closely by business-continuity plans.
"Given the rapidly changing situation, businesses need to be nimble and flexible. We advocate a corporate response that focuses on preparedness, protection, monitoring and communication," the report said.
The longer-term focus for real estate decision-makers would be operational resilience if they ever faced another event in the future with any similarities.
Giving a three-month outlook, JLL said business must examine the continuity of mobile and remote-working, expect supply chain disruption to impact operations and more hesitancy and caution in real estate decision-making. A reduction of face-to-face interaction should also be anticipated and planning begin for alternative means of contact and engagement.
In the three-months-plus planning scenario, business could expect an acceleration of remote working and a longer-term cultural shift. Reduced air travel by staff could "shift enterprise perception" because of reduced carbon emissions.
The need for high-spec real estate to offer a healthy and safe workplace and an increase in workplace technology adoption was cited in that longer-term scenario.
JLL said real estate investment had fluctuated during previous global crises "but the overarching trend over time has been for increased allocations to the sector and we see no reason for this to change. Real estate continues to offer attractive relative returns in comparison to other asset classes."
If the virus was contained relatively quickly, a market or financial "bounce-back" in the second half of this year could be expected.
"The differential between real estate yields and government bond yields remains at or near all-time highs. Given this, we expect to see continued flows and potentially an increase of capital into real estate over the medium to long term. As such, the yield impact of Covid-19 is predicted to be minimal," JLL concluded.