How the coronavirus crisis is testing Asia’s commercial property industry

The outbreak comes at a time when Asia’s office markets have already weakened and retail rents have declined – especially in Hong Kong. The virus-induced hit to growth is likely to accelerate the decentralisation trend in the office sector

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A woman wearing a face mask walks past office buildings in Beijing. Photo: Reuters

Published: 11:30am, 25 Feb 2020Updated: 11:43am, 25 Feb 2020

As the coronavirus outbreak enters a new phase, with infections spreading more rapidly across Asia and Europe, and the data showing the disease’s dampening effect on economic activity, the commercial property industry is grappling with the fallout.

While Beijing’s ability to contain the spread of Covid-19 is still in doubt, and the epidemic’s impact on the Chinese economy is shrouded in uncertainty, the outbreak comes at a time when Asia’s property markets have already weakened, and corporate real estate is being transformed by technology and workplace flexibility.

In the final quarter of last year, net absorption of office space in the Asia-Pacific fell 18 per cent year on year to a five-year low, mainly because of a dramatic decline in leasing activity in Beijing and Shanghai, data from CBRE shows. In the retail sector, rents fell 3.6 per cent year on year, with the regional average pulled down by a 19 per cent fall in Hong Kong. Even in the more resilient logistics sector, demand and rental growth slowed as occupiers turned more cautious.

In financial markets, the consensus view is that the virus will be contained fairly quickly, and that its economic impact on China and the broader region will be transitory. Yet, even if demand recovers swiftly, the supply side is more problematic. China’s deep integration into global supply chains increases the scope for a prolonged disruption to economic activity, with just-in-time logistics particularly vulnerable.

Unlike markets, which focus solely on the short term, real estate investors and occupiers need to anticipate longer-term trends and structural changes to the industry.

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