In common with almost all economic sectors, global real estate has suffered the effects of covid-19. Recent research from Savills reveals that investment volumes fell in the first half of 2020 across the world. And certain real estate segments suffered a particularly hard hit. Moving forward, analysts are optimistic that infrastructure projects will lift the sector in the long term.
Volumes down by 33%
The Savills Activity in Real Estate Investment report, with data for the first six months of this year, finds that volumes dropped by 33%. The first half of 2020 saw investment drop the most in Asia-Pacific (down 45%). The Americas followed with a 36% decrease and EMEA with 19%.
Given the wide-reaching impact of the pandemic across the world, it’s no surprise to see global real estate investment fall by a third. To put the figure into perspective, Savills compare it to the decrease seen in the first half of 2008. At the start of the Global Financial Crisis over a decade ago, property investment volumes plummeted by 49%. Furthermore, they continued to go down well into 2009.
Investment in global real estate suffered generally during the first half of year. However, covid-19 had a much greater effect on some sectors than others. Savills found that the volume of investment in hotels fell by 59%, reflecting the hard hit suffered by tourism.
Retail was the next with a 41% drop in global real estate investment between January and June. The office sector was close behind (down 40%). In the light of these figures, it seems obvious that the three segments will take the longest to recover post pandemic.
On the other hand, industrial property saw just a 4% drop in investment volumes in the first half of the year. For its part, residential felt the impact, but only suffered a 26% drop. In Asia-Pacific, investment in this sector actually rose and the region saw a 105% increase.
Cross border sales
With a large number of countries in lockdown and global travel more or less at a standstill, cross border sales also experienced the effects of covid-19. According to Savills, they dropped by 30% in H1 2020 compared to the year earlier. With travel restrictions, it's perhaps surprising that they did not fall further.
“Undertaking a physical inspection of an asset is an important part of the property acquisition process for many investors,” says Rasheed Hassan, head of Savills Global Cross Border Investment. “The general expectation is that this would have halted cross-border trade more dramatically than it has.” However, he believes the figure is not higher because many investors saw the assets in 2019 or because “not all investors need to see assets prior to acquiring them”.
Investment volumes in big cities
Savills found that global real estate investment dropped in the world’s biggest cities. New York was still the most active for investment volumes, but they fell by 43% in the first half of this year. The US dominates the top ten positions, taking six of the places. This year’s new arrival is Boston in seventh place. The city saw a decrease of just 19% in investment volumes.
Boston replaced Hong Kong, which left the top ten ranking. Economic uncertainty plus the pandemic have meant investors have moved away from the financial hotspot. As a result, real estate investment in Hong Kong dropped by a massive 81% in the first six months of this year.
What’s next for global real estate?
Savills makes several predictions for the rest of the year as investors adapt to the new reality. They believe that real estate investment in Europe will see a drop of between 34% and 52% by the end of 2020. The worst figure is comparable to that seen in 2008 when volumes fell by 54%.
Logistics would appear to be the star player this year with many analysts expecting investment in the sector to increase by December. Retail looks to stay the same and experts are divided on office. Some expect possibly more investment while others believe that working remotely will continue.
All in all, the outlook is bright, although Savills point out that investors are waiting for “market clarity”. Massive government investment in infrastructure projects “bodes well for the real estate industry in the long term,” says Simon Hope, Head of Global Capital Markets. He believes this will a positive move for global real estate because it “potentially creates more assets to invest in”.