CUHK Business School Research Finds Rents in Asia-Pacific Fell Dramatically but Property Prices Stayed Strong During the Pandemic
HONG KONG SAR - Media
OutReach - 2 December
2021 - Empty office buildings, hotel rooms
and shopping malls – these are the facts of life in the post-pandemic new
normal. They are also the results of social distancing measures as well as
government-imposed lockdowns implemented around the world to lessen the spread
of COVID-19, the effects of which have rippled across real estate markets in
Asia. It is with this in mind that a recent study found that property prices in
the overall market for much of the Asian Pacific region remained stable.
However, within the different segments of the real estate, the market witnessed
a refocusing from some investors towards strategies involving deployment of
capital towards sectors of industry that actually benefited from COVID-19.
The study The
COVID-19 Pandemic and Commercial Property Rent Dynamics was co-written by Dr. Ervi Liusman and Prof. Desmond Tsang,
Lecturer and Associate Professor, respectively, in the School of Hotel and
Tourism Management at The Chinese University of Hong Kong (CUHK) Business
School. Based on data from global real estate consultancy JLL, the study examined rental figures and property prices of
38 cities in 12 countries and jurisdictions in the Asia-Pacific region,
including Hong Kong, Singapore, Tokyo and Kuala Lumpur. The property sectors
included office, retail, industrial and residential. They then analysed the
trends in rents and property prices in the regions.
According to the study, rents of
properties across these sectors fell approximately 15 percent on average across
the Asia-Pacific region in the first six months of 2020, coinciding with the
beginning of the pandemic. Office rentals recorded moderate declines of
approximately 14 percent. However, the most significant and continued declines
in rent was found in retail properties, such as shopping malls, which fell over
30 percent in the period. The study found a negative relationship between the
number of COVID-19 confirmed cases and deaths and market rent in the region.
Interestingly, property prices in the overall market did not fall despite the
drastic drop in rents.
Flight to Quality
According to the study results and
anecdotal evidence, overall property prices in the Asia Pacific remained strong
despite the surge in COVID-19 cases with less focus on retail investment and
more and of a focus into the residential and industrial properties sectors.
At the start of the pandemic, the
researchers say the social distancing measures and lockdowns implemented in
response to the pandemic forced people to stay at home and consequently led to
a boom in e-commerce at the expense of demand in physical retail stores. Many
stores also had to close down and without stable rental income, and landlords
or investors became more likely to sell retail properties in their portfolios.
This simultaneous movement in both sides of supply and demand meant retail real
estate prices saw a significant drop.
In response, investors redistributed
their capital allocation strategies within the overall property market, taking
more defensive strategies amid the pandemic, according to the researchers. That
is, they reallocated funds to sectors that can better withstand the
uncertainties brought by the pandemic, such as by investing in data centres,
factories and warehouses. Given the prolonged COVID-19 pandemic, it was natural
for many investors to have concerns about the eventual prospect of the retail
property market, which is why they chose to put their money in other property
"What we are seeing could be a
'flight to quality' phenomenon, where investors are abandoning risky assets
such as retail properties and choosing to invest in safer options, like data
centres or warehouses," says Dr. Liusman. "Demand for real estate is
a derived demand, which means it's based on demand for something else, and
people still need space for production and consumption. With consumers shifting
their purchases to e-commerce, online companies will need space to run their
businesses as well as for logistics, hence the rosier prospects for industrial
as well as other types of non-retail property."
She adds that supply within the
industrial property sector has remained tight with robust demand. E-commerce
platforms, technology and telecommunication companies, food and drinks
operators and pharmaceutical companies – all of which require industrial
warehousing and factory space to run their operations – were likely to have
been the driving force for the strong demand witnessed in this sector.
To deal with the unprecedented
crisis brought by the COVID-19 pandemic, governments worldwide have implemented
different support programmes to restore their economies, as shown in a report
published by the International Monetary Fund.
The researchers investigated the
fiscal stimuli packages carried out by governments in the Asia-Pacific
countries. For instance, China announced an estimated 4.9 trillion Chinese yuan
in fiscal measures, including tax relief and reduced social security
contributions. The researchers examined how different stimuli affected
different markets in the Asia Pacific region.
They found that government fiscal
stimuli had a positive effect on reducing declines in property rents. However,
they also discovered that this positive effect had already worn off by the time
the announced measures got around to being implemented. They explained that
government fiscal stimulus packages seem to be effective in mitigating the
negative impact of the pandemic but this seemed to work at least as much
through helping to restore confidence in the property market as the financial
aspect of the measures themselves.
"It would seem that it is the
announcements of those grand schemes of fiscal stimuli that weakened the fall
in rents. What this means is that the governments' initial response may be what
matters more in restoring investor confidence than what the governments
actually do to help the economies," Prof. Tsang says.
Hunting for Bargains
The researchers believe that their
research findings can provide valuable implications on how the pandemic has
affected the global property environment. "Due to the diverse nature of
real estate, the impact of the COVID-19 pandemic varied significantly across
different regions and sectors. While some property sectors like retail and
hotels may have been negatively impacted by the pandemic, other sectors were
relatively stable," Dr. Liusman says. "As an investor, it is important
to examine the market demand for a particular sector when selecting the
Dr. Liusman notes that while periods
of economic crises generally presented good opportunities for investors to
bargain-hunt, during the current pandemic property owners in the overall market
shied away from slashing prices to offload their assets. She explains that one
reason may be due to the government fiscal stimulus packages helping to restore
investor confidence. Another possibility is perhaps because those building
owners had deep pockets and did not feel an urgency to sell their properties.
Commenting on future research
directions, the researchers said further research could be focused on how the
property market has reacted to the recovery from the pandemic. Additional
research may also consider looking into any potential relapse in the property
market due to the discovery of variants of the COVID-19 virus.
Allan R, Liusman E, Lu T, Tsang D. The COVID-19
Pandemic and Commercial Property Rent Dynamics. Journal of Risk and Financial Management. 2021; 14(8):360. https://doi.org/10.3390/jrfm14080360
This article was first published in the China
Business Knowledge (CBK) website by CUHK Business School: https://bit.ly/3oU8fiG.
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About CUHK Business School
Business School comprises two schools – Accountancy and Hotel and
Tourism Management – and four departments – Decision Sciences and
Managerial Economics, Finance, Management and Marketing. Established
in Hong Kong in 1963, it is the first business school to offer BBA, MBA and
Executive MBA programmes in the region. Today, CUHK Business School
offers 9 undergraduate programmes and 18
graduate programmes including MBA, EMBA,
Master, MSc, MPhil and Ph.D.
The School currently has more than 4,500 undergraduate and
postgraduate students from 20+ countries/regions.
the Financial Times Executive MBA ranking 2021, CUHK EMBA is
ranked 19th in the world. In FT's 2021 Global MBA Ranking,
CUHK MBA is ranked 48th. CUHK Business School
has the largest number of business alumni (40,000+) among universities/business
schools in Hong Kong – many of whom are key business leaders.