Under a microscope: As coronavirus cases rise, property markets react
- April 1, 2020: Vol. 7, Number 4

Under a microscope: As coronavirus cases rise, property markets react

by Jennifer Molloy

Over the years, it has been impossible to escape the growth story, draw and influence of China — for real estate investors and the global economy. Now, that growth story is being disrupted by a black swan event, which in this case is a microscopic, highly contagious novel coronavirus — officially known as Coronavirus Disease 2019 (COVID-19) — that originated in the Chinese city of Wuhan in Hubei provence in December 2019. As of Feb. 28, the World Health Organization increased its assessment of the risk of spread and risk of impact of COVID-19 to “very high” at the global level.

While the Chinese government has been more transparent than during the SARS epidemic in 2003, it is still challenged. In fact, in the October 2019 release of the Global Health Security Index, China received an overall index score of 48.2 out of 100, and ranks 51 out of 195 countries on the six categories it assesses in relation to natural, intentional and accidental biological threats. (For comparison, the United States ranks the highest among nations, with an overall index score of 83.5.)

But unlike during the SARS epidemic, the economic impact is greater now. In 2003, China accounted for 6.9 percent of global GDP, but that number was 16.8 percent in 2019, according Oxford Economics and CBRE Research.

In February, some GDP growth forecasts downgraded China to between 4 percent and 5 percent year-over-year for the first half of 2020, and many other regional markets are bracing for a “moderate short-term impact,” reports CBRE Research.

While the vast majority of COVID-19 cases are in China, where it is finally slowing, cases in South Korea and Italy, among others, are on the rise, stoking fears of a possible pandemic. The increase in cases in these two developed nations sent stock markets around the world reeling on Feb. 24, with the week concluding with the greatest losses in the U.S. stock market since the 2008 global financial crisis. Global supply chains, businesses and tourism have all been affected.

On March 3, the U.S. Federal Open Market Committee cut interest rates by 50 basis points and said in a statement: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity.”

For all of 2020, Mark Zandi, chief economist at Moody’s Analytics, expects the coronavirus outbreak to take two-tenths of a percentage point off of U.S. GDP, to 1.7 percent. And, if the coronavirus officially becomes a pandemic, Zandi indicates it almost certainly would result in a U.S. and global recession, reported USA Today on Feb. 25.

“Going into this, the global economy was already very weak. I mean, Europe was close to recession. Obviously, China and Asia [were] struggling,” Zandi told CNN on Feb. 26. He said the spread of the coronavirus has just added to a global economy already on its heels from the considerable damage caused by the trade war, he explained. “Anything comes along and just pushes a little bit, we will be flat on our back, and the coronavirus is more than just a little push. It’s a big push,” he stated.

According to Zandi, reductions in travel and tourism are currently the main ways in which the spread of the coronavirus is taking a toll on the U.S. economy. As demand in Asia and Europe lessens, the U.S. will likely export less to Asia and Europe, notes USA Today, and lower imports from both regions into the United States should lead to shortages of parts and retail product, with higher prices curbing consumer spending.


In Asia Pacific, Chinese visitors make up at least 33 percent of tourist shopping expenditure in top destinations such as Singapore, South Korea, Japan and Australia, meaning “travel restrictions and reduced flight capacity will cause a significant decline in inbound demand across the region,” notes the Feb. 28 release of CBRE Research’s Asia Pacific special report, Why the Coronavirus (COVID-19) Outbreak Could Have A Lasting Impact on Asia Pacific Real Estate. With more than 75 percent of tourist arrivals to Hong Kong SAR originating in mainland China, the retail sales impact could be even higher. And the hospitality sector is expected to take a big hit, with RevPAR and occupancy in Hong Kong already under downward pressure.

In addition, “some office occupiers, especially those in Greater China, have postponed major leasing decisions, brick-and-mortar retailers across Asia Pacific are feeling the strain, and general logistics operators are struggling to deliver goods to customers due to shortage of labor,” states the report. “Many investors have moved into wait-and-see mode.”


Although the ramifications, spread, and economic impact of the outbreak have yet to be fully realized, Keppel Capital’s research commentary from Feb. 10 puts the matter into greater perspective for real estate investors.

According to the firm, the fact that many Asian nations still maintain accommodative fiscal and monetary policies should help soften the economic blow, which is expected to be limited to the first half of 2020. Stimulus measures and pent-up demand should help the Chinese economy rebound in the second half of the year.

Although the outbreak has hit the transport, retail, travel and hospitality sectors the hardest, Keppel Capital expects few lasting effects on real estate, and even possible investment opportunities. The macro-trends of urbanization, a growing middle class and increasing interconnectivity in Asia’s gateway cities will not only “transcend the temporary disruptions” caused by viral outbreaks but also “underpin the resiliency and growth of alternative asset classes” such as infrastructure, education and data centers.

As scientists study the current coronavirus outbreak and how best to treat it, the world is viewing China, and all the potential effects of this black swan event, under a microscope. During this ongoing event, real estate investors will need their advisers to provide the best information they can to help protect tenants and investments.


Jennifer Molloy is senior editor of Institutional Real Estate Asia Pacific, a sister publication to Real Assets Adviser.

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