In its first of a series of global sentiment surveys, Savills has assessed the initial impact of Covid-19 on transactional and occupier markets around the world, with 67 percent of countries currently reporting a moderate negative impact, and 29 percent citing a severely negative impact.
The Savills Global Market Sentiment Survey is intended to provide a snapshot of the market conditions across 24 global country markets* between 27th – 31st 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 percent of all real estate sectors globally. The sharpest falls in activity were seen in retail, with activity reported to be down in 82 percent of the countries surveyed, and hotels where transaction activity fell in 84 percent of countries.
Capital values: The impact on capital valuesis yet to be seen at the same scale, with Savills researchers seeing pricing remaining firm in 51 percent 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 percent of markets reported drops. Only in China, Malaysia, Vietnam and Portugal have they remained unchanged. Logistics is a bright spot, with 57 percent of markets recording no change, or rises, in transaction activity, opposed to the 43 percent 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 percent of countries and just 13 percent stated a sharp fall. Demand in the residential sectors has also fallen moderately. The hotel sector however has been hit hardest with 95 percent 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 percent 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 percent of countries/sectors. The exceptions are once again retail and hotels where 30 percent and 63 percent of countries reported rental values to have fallen sharply, respectively. Favourable terms for retail tenants were reported in 86 percent of countries. Just over 50 percent of countries reported favourable terms for office tenants, and 23 percent in the logistics sector.
Paul Tostevin, director in Savills World research team, comments: “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 percent of countries report a moderate negative impact, while 29 percent 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.”
Mat Oakley, head of UK and European commercial research at Savills, adds: “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.
Wioleta Wojtczak, Head of Research at Savills in Poland adds: “What we observe and experience on the Polish real estate market does not differ from the observations made in other countries. We clearly see increased caution of all entities operating on the market, both when entering long-term lease agreements and investing in the real estate market. Limitations may be observed also on the supply side, as some investors are putting the sale process on hold and adopt a “wait and see” strategy. However, this impact will be more visible in Q2 results and most likely also in H2.
The situation is dynamic and a number of companies are still considering or revising scenarios and strategies for the coming weeks, months and even years. This may have consequences and be noticeable in the next years. Undoubtedly an instant change was made in the way we work, shop and spend our free time, and some of these changes in different forms will be more permanent and will change the way we become accustomed to function in these areas of life. All this will not be without impact on the real estate market.
Taking into account the current situation in China and South Korea, I look into the future with hope. These countries are slowly getting back to normality and it refers also to the real estate market as employees return to their offices, people start to shop again and transaction activity is increasing.”
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