“We hope that Covid-19 will be a short lived event. At CBRE, in the second half we hope to see a bounce back,” said Henry Chin, Head of Research for Asia Pacific at the real estate services company. “However, retail, tourism and hospitality have been the hardest hit and it will take a lot longer for these sectors to recover.” 

He noted that some five-star hotels had an occupancy rate of below 5% in February. “But Hong Kong is very resilient,” he added. “For example, some luxury hotels are fully booked for afternoon tea throughout April, so we can see they are working to diversify their income.” 

Chin remarked that activity in Mainland China had been returning to normal in recent weeks, demonstrated by power consumption, which had reverted almost to normal levels in March, from around 50% during the height of the outbreak. 

Cynthia Chan, Associate Director at CBRE, reported that figures from retail stores in the Mainland paint a similar picture. Although sales fell by 20% year-on-year in the first two months of 2020 amid widespread closures, by March, 80% to 90% of stores had reopened.  Apple, for example, had reopened all of its stores. 

However, she warned that crowd management measures remain in place and some retailers are operating shorter opening times in the Mainland, while many other Asian countries are still in lockdown mode. On a positive note for the sector, some retail landlords in the Asia Pacific – including the Mainland, Korea and Singapore – have offered temporary rent relief measures. 

Besides retail, the worst-hit industries have been tourism and hospitality, Chan explained.

“The impact on tourism is worse than that of SARS and the Great Financial Crisis combined,” she said. “We think it will take at least two years for tourism to recover to a normal level.”

In terms of office demand, the Hong Kong market bounced back quickly after SARS, however, CBRE expects that the impact of the coronavirus will be bigger. 

“So far, the office sector has been more resilient,” she said. In terms of leasing, while many companies have put expansion plans on hold, one exception is the online gaming sector, which is seeing rapid revenue growth and will require more office space. 

CBRE also expect to see a rental correction, although the rapidly evolving coronavirus news means the situation is difficult to predict. “Right now we expect a 10% decline in rent. But we are reviewing our forecasts and could see 15 to 20% decline in Central.”

She then handed back to Chin, who discussed the latest trends in investment activity. He referred to a survey carried out in January and February that revealed investors are becoming more cautious and their motives for investment are shifting. 

“The reason for them to buy real estate is moving away from capital value growth and moving towards cash flow,” he said. “They want tenants to be able to pay their rent.”

Longer term trends that Chin expects to see include a much stronger focus on wellness and sustainability in buildings, and more omni-channel retailing, for example brick-and-mortar stores providing pick-up points for online purchases.

As the Chinese Mainland gets back to work, Chin also expects to see changes to the industrial real estate sector.

“We expect cold-storage demand will surge and deliveries will become more automated,” he said. “Older logistics facilities should be redeveloped, because they are in often good locations but are not as efficient as they could be.”

Chin also anticipates that the increase in people working from home will have a longer term impact on office occupiers. “Flexible working is going to happen, and companies will need to assess their use of space.”

He expects co-working spaces to be an important part of new developments: “In the next 10 years, developers of new buildings will have an element of agile spaces, whether a third party operator or their own brand.”

Chan agreed, saying that although co-working spaces are experiencing short-term pain, there are opportunities for the sector. “Because office occupiers are very cautious, co-working is a solution to save capital,” she said.