Government constraints on social mobility have led to empty shopping centers, leisure centers and hotels, which are heavily reliant on the related steps taken on an ad hoc basis in the country's pandemic situation. Collected quarterly rents have plunged, resulting in € 70 billion for landlords and lenders and capital inflows after a quarterly peak in the final quarter of 2019, as the economy spirals into recession.
Apparently, the Covid-19 crisis is deeper than initially predicted. In this context, real estate is likely to share part of the burden of economic pain in the short term, but it can prove more resilient in the long run due to its defensive nature.
As several office-based roles have been forced to operate remotely during the pandemic, companies have had the ability to determine the effect on productivity. In cases where the change has seen productivity preserved or increased, companies may be motivated to reassess their office space needs.
With this in mind, according to a pan-European survey carried out in the second quarter of 2020, more than 3/4 of the companies will look to scale back its existing office footprint over the next two years. Disaggregating the findings further, the largest share of the companies (about 1/3) would minimize their office space requirements up to 10% on average.
During the first semester of 2020, there was a sharp decline in the demand for tenants across the retail and office sectors over the year. Vacancies increased across the office and retail portions of the industry in Q2, the supply of leasable space decreased in the industrial sector.
Market participants in the real estate market in Greece expect rents to decline across most sectors in the coming year, with secondary retail space rents dropping by more than 8% and, on the contrary, industrial rents rising by about 3%, while the outlook for prime office rents is slightly positive.
On the investment side of the industry, investment enquiries have decreased dramatically across the office and retail sectors, while demand for industrial properties has stagnated over the quarter. Twelve-month capital-value forecasts point to prime industrial and office properties, with a general downward trend towards solid gains.
Having said that, the outlook is comfortably pessimistic for the remaining groups, with secondary office values forecast to decline by more than 5%. Despite the daunting global economic conditions caused by the Covid-19 pandemic, the vast majority of the professionals in Greece still believe that commercial real estate across Greece provides at least fair value to investors.
The US and European imports from China and elsewhere are declining due to the instability of the supply chain, which may weaken the market for warehouses linked to these imports. However, fulfillment centers and new logistics facilities linked to e-commerce sales will continue to perform well.
Office rental prices are predicted to come under pressure and EU property values are forecast to decline in 2020.
Higher decreases in premium rental rates are projected to be more than twice as resilient to past GDP shifts. This increased vulnerability to GDP has obviously been exacerbated by the lockdown and the effects of continued e-commerce penetration, as already expressed in the Covid-19 crisis.
On the other hand, the overall return on prime logistics is more resilient, as lower rental growth is compensated by a tightening of yields, holding capital value growth steady across various scenarios.
In the case of developments, confusion about the timing and costs of projects is heightened, considering the disruption of supply chains. Leasing operations are likely to be subdued for projects that are completed in the months ahead.
Loss of demand in specific real estate markets (e.g. retail, leisure) and gains in others (last mile logistics, spacious housing) would have an effect on investment that will contribute to greater diversification on the basis of the allocation of Sectors, Assets, Operators and Tenants with the aim to rebalance the risks and the return.
Autor: Yacine Bougrassa, CEO, BKMS Family Office