Daily Management Review

CORONA-Impact: Real Estate and M&A Trends


There is currently more than $2 trillion in dry powder available on the global property market, paired with a strong and timely stimulus on the economy from a range of government and a global pre-crisis economic situation that was stronger than the one that set the context of the 2008 Global Financial crisis.

The severity of Corona and its impact on the Real Estate world differs widely per asset class, according to major actors of the sector, according to  Nora Creedon from Goldman Sachs .
Corona starts to bite
The most visibly impacted areas seem to be the retail, hospitality and senior living facilities, which represent - as a whole - about a fifth of the real estate market. With regards to the retail sector, the long-term impact of the COVID-19 lockdown would depend on the capacity to shift towards a flexible omni-channel retail model involving online sales and the reassessment of existing store networks.
Offices and Residentials
Areas like offices, residential Real Estate and Self-storage - about 45% of the property world - seem to be performing well enough now. The question is, however whether the ability to collect rent is going to be sustained in the long term. In that matter, offices and lower-income rental properties are at increased risk. As to the businesses, the hope is that some portion of the governments’ stimulus money will go to paying rent, and whether companies will want to employ as many people in central business districts. Also, the question is whether more people will move to the suburbs.
Many within the industry believe that the offices sector’s immediate future will be determined by structural changes to how space is used and the integration of lower workers concentration and arrangement of more enhanced remote-working options. For example, the industry may reconsider how offices and work spaces are designed, which could lead to third party real estate service providers playing a more dominant role.
Some areas are already benefiting from behaviourial changes, around 35% of the Real Estate market. The first and most obvious one is data centres and cell phone towers, where stocks are actually up. Due to the lockdown, the videoconferencing app Zoom has now 200 million users daily, 20 times more than in December 2019.
At the same time, the share prices of Amazon Web Services and Equinix, two companies that help Zoom operate its business and connect to the Cloud, have experienced an +27,18% variation, climbing from $1694,64 on the 1st of January to $2327,16 at the end of April. Equinix saw a +20,27% variation, going from $561 to $702,17 at the end of April, over the same period.
Then there is the industrial logistics sector. In this area, many industry observers are convinced the role of technology will increasingly play a role in warehouses and other industrial properties. Moreover, the development of portfolio diversification and investments in properties that offer multi-modal transport facilities. Overall, the ongoing low interest rate ecosystem and financial asset price volatility is likely to continue to support the case for portfolio variation, which helps a further inflow of capital into the real estate space.
Global transactions are down
As to M&A, albeit it is already apparent that deal activity has dropped. For example, around 25% to 30% of live deals in the Pacific region have been shelved, according to Marsh & McLennan, while numerous other transactions have been pulled or delayed. The risk assessors anticipate that companies with a healthy balance sheet can grab opportunities to pursue deals that create long-term value. However, one thing buyers and sellers may encounter in the property investment space is the introduction of a so-called corona clause, as some contracts have already showed. As a way to mitigate too much risk, these clauses allow for extension of dates for escrow or settlement due to unforeseen circumstances. It offers both parties an option that, under the uncertain and unpredictable circumstances, to be able to walk away as that is a likelihood the industry will need to prepare for more and more in the months to come. It is going to be an interesting summer.
Albert Finch
Head of Research
Rodschinson Investment Strategic Research Center