Real estate impact due to Covid-19 expected to be short-lived

Multiple lines of defence to minimize the chances of the Covid-19 spreading further expected to minimise real estate impact

The economic impact of the Coronavirus issue is expected to be short-lived based on the current situation, says a note from Cushman & Wakefield (C&W). The report said that the Singapore government has tried to put in place multiple lines of defence to minimize the chances of the virus spreading further.

Any disruption to market activity is expected to be short-lived and so the real estate impact will be minimal said Ms Christine Li, C&W’s Head of Research for South East Asia.

“Singapore, Singapore; held up by the country’s sound economic fundamentals. The impact will be mostly felt by the hospitality, retail and F&B sectors, with limited impact on both the office and industrial sectors as these are non-tourism related sectors. Corporates may delay decision making in the first quarter of 2020 as they focus on tactical issues around operations in China for the moment. This is expected to impact activity in the first quarter of 2020 against an office leasing market that has already been grappling with a slowdown arising from the US-China trade war.”

Although the real estate impact will be minimal, the impact on the hospitality sector is more immediate said the report.

“With millions in China under an effective lockdown and a ban on Chinese tour groups and travellers who have recently travelled to China, tourist arrivals especially from China are expected to slow in 1H 2020. Given that Chinese tourists make up about 20 per cent of Singapore’s international visitors with about 3.6 million visitors to Singapore in 2019, overall hotel RevPar is expected to see some downward pressure in the first half.

“The slow down in tourist arrivals will result in a decline in shopping spend by Chinese tourists, particularly retail trades and tourist destinations which cater to Chinese tourists. Chinese tourists were the top spenders in the first half of 2019, spending close to S$2 billion on shopping, accommodation, F&B, etc, with 51 per cent on shopping alone. As such, some of the more touristy shopping destinations mainly in Marina Bay Sands and Orchard locations could be affected if the travel ban and outbreak persists.”

As the real estate impact is expected to be minimal, landlords of major shopping centres are not under pressure to lower rents, especially if the overall situation improves in the next couple of weeks, said C&W.

“Typically, the well-managed shopping centres also have enough tenants in waiting to take up any vacancy that becomes available. So long as the virus remains at bay with no community spread, the temporary decline in footfalls at malls should recover over a short period of time.”

In the residential sector, there could be a slight impact on project launches as developers are likely to hold back new launches in view of the weaker sentiment, said C&W.

Ms Li said, “high-end luxury properties with more Chinese buyers could face slower take-up rates as viewings are expected to slow down in the midst of the outbreak. Again, the impact should still be contained as Singapore continues to be seen as a safe haven location amid heightened global uncertainties.”

She added, “liquidity is still aplenty and investors continue to search for yield in the real estate sector. Well-managed and well-located office and industrial assets will remain sought after by investors and occupiers who typically take a medium to long term view when they purchase or lease these properties.”

The report said that post-Wuhan virus, the mid-term outlook for the hospitality market is favourable, given the low hotel supply pipeline over the next few years and healthy visitor arrival estimates.

Ms Li said, “a slew of new tourist initiatives and developments are expected to raise the attractiveness of Singapore as a regional tourist destination in Southeast Asia over the long term.”

She added, “this includes continued investment in Singapore’s aviation infrastructure (Changi Airport Terminal 5), and tourism attractions/developments such as the Mandai eco-tourism hub, Jurong Lake District, Sentosa redevelopment and AEI works at the two integrated resorts.”

MOH’s COVID-19 ADVISORY

The Ministry of Health (MOH) advised Singaporeans to defer all travel to Hubei Province and all non-essential travel to Mainland China. MOH said all travellers should monitor their health closely for two weeks upon return to Singapore and seek medical attention promptly if they feel unwell.

Travellers should inform their doctor of their travel history. If they have a fever or respiratory symptoms (e.g. cough, shortness of breath), they should wear a mask and call the clinic ahead of the visit.

MOH advises travellers and members of the public to adopt the following precautions at all times:

• Avoid close contact with people who are unwell or showing symptoms of illness;
• Observe good personal hygiene;
• Practise frequent hand washing with soap (e.g. before handling food or eating, after going to toilet, or when hands are dirtied by respiratory secretions after coughing or sneezing);
• Wear a mask if you have respiratory symptoms such as a cough or shortness of breath;
• Cover your mouth with a tissue paper when coughing or sneezing, and dispose the soiled tissue paper in the rubbish bin immediately; and
• Seek medical attention promptly if you are feeling unwell.

MOH said that it will continue to monitor the situation closely. It added that as medical practitioners are on the lookout for suspect cases, Singapore is likely to see more cases that will need to be investigated.