The View | Coronavirus recovery: flight to quality gives property investors a chance to add value

Covid-19 has led to a sharper flight to safety, with investors seeking reliable returns favouring the most resilient and secure properties

The flight to quality is just as important, providing an unprecedented opportunity to add value to real estate by upgrading buildings for the post-coronavirus world

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Commercial property in Hong Kong’s Causeway Bay district. The commercial property industry as a whole is struggling to cope with the unprecedented disruption caused by the pandemic. Photo: Martin Chan

Published: 4:30pm, 5 Apr 2021Updated: 4:30pm, 5 Apr 2021

For an indication of the extent to which investors still harbour doubts about the ability of the commercial property industry to cope with the unprecedented disruption caused by the pandemic, look no further than the share price of an S&P 500 index of office-focused real estate investment trusts (Reit). While the broader S&P 500 index has long since surpassed its pre-pandemic peak last August, the office Reit sub-index is still trading at 20 per cent below its level in February 2020.

To be sure, there have been sharp divergences in the performance of different sectors within the property industry. Logistics assets, which benefited from lockdowns as the pandemic pushed more consumers online and prompted a rush for warehouse space, have thrived. The hotel sector, by contrast, is suffering amid the collapse in tourism and business travel.

However, the real estate industry as a whole is being convulsed by changes in the way people live, work and play, creating uncertainty over the future demand for, and use of, different types of property. While the consequences and duration of these changes are unclear, trends observable before the pandemic – the rise of e-commerce, the shift to flexible working and more emphasis on wellness and sustainability – have accelerated, forcing owners and developers to rethink the future of real estate.

The challenges thrown up by the pandemic include urgent action to protect the safety and health of staff, occupiers and other end users of real estate, investing in digitalisation and delivering better tenant and customer experiences. These are putting the design, performance and location of properties under close scrutiny.

While the requirements of occupiers changed almost overnight following the eruption of the Covid-19 pandemic, owners and operators are just beginning to respond. Even the highest-quality properties in the most established and liquid markets now require some investment or enhancement to meet new post-pandemic standards and benchmarks.

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.css-1m2rp1p{color:#34b8b5;}The View | Coronavirus recovery: flight to quality gives property investors a chance to add value

The View | Coronavirus recovery: flight to quality gives property investors a chance to add value