The Impact of COVID-19 on Real Estate Investment - Conference Call Series

Market Disruption & Immediate Impact

• Q1 2020 real estate transaction volumes in Asia-Pacific declined approximately 30% year-on-year, driven by investor caution and travel restrictions halting deal execution.
• Hospitality sector performance has collapsed in key markets; one Hong Kong developer reported hotel occupancy dropping to 2% or lower, with security and cleaning services generating more income than the hotels.
• Construction activities in India have halted completely due to curfews, with disruptions to supply chains and migrant labor creating a "two-to-three days recovery per one day of lockdown" multiplier effect.
• Office markets remain largely operational despite vacancy, though service companies dependent on third-party contracts have paused expansion and hiring.
• Retail sector performance is bifurcated: supermarkets and food markets saw 20–40% sales growth, while large-format restaurants and non-essential retail faced severe declines.
• Logistics, data centers, and warehouse sectors are outperforming, with occupancy rates rising even in China's tier-two cities post-lockdown.
• Some outlet malls in China (excluding Wuhan) exceeded pre-crisis trading projections by 20%, attributed to "revenge spending" from consumers.

Investor Sentiment & Capital Flows

• Investor sentiment is characterized by uncertainty and a "wait-and-see" approach rather than pure pessimism, with large institutions having significant dry powder to deploy once clarity emerges.
• Distressed asset selling has been muted in unlisted markets compared to public markets, as investors focus on asset management, tenant communication, and covenant compliance.
• BlackRock raised nearly $600 million for its Asia Fund 5 prior to the crisis; the firm remains ready to invest but acknowledges delayed deployment timelines.
• Sovereign wealth funds, pension funds, and insurance companies have historically increased allocations to Asia-Pacific for diversification, a trend expected to resume post-crisis.
• Japan and Korea are viewed as defensive markets due to strong domestic liquidity and lower reliance on foreign capital, potentially weathering the crisis better than export-dependent economies.
• Currency stability is becoming a key factor for investors, with a preference for defensive currencies like the Japanese Yen and the low Australian dollar.

Asset Class Performance & Strategic Shifts

• Co-working and co-living sectors are not expected to disappear but will undergo consolidation, shifting from balance-sheet-heavy models to management contract fees as valuations rationalize and funding dries up.
• Long-term structural drivers remain intact for India and China, specifically urbanization, demographics, and the "knowledge economy" (5G, data centers, e-commerce).
• Retail analysis is becoming more granular, with increased focus on lease structures (e.g., turnover rent vs. fixed rent) and retailer resilience during stress periods.
• Office space demand is expected to rebound in India and Vietnam over the medium term, potentially accelerated by cost-cutting and offshoring trends in the US and Europe.
• Medical office and health-related real estate are identified as defensive beneficiaries with accelerating investment interest.

Geographic Outlook & Recovery Trajectory

• Recovery timelines are estimated to be 2–3 times the duration of the shutdown (e.g., a 3-month shutdown implies a 6–9 month recovery; 6 months implies 12–18 months).
• Markets with large domestic economies (China, Japan, US) are expected to recover faster than those reliant on tourism and external trade.
• Vietnam is highlighted for strong growth, benefiting from trade war shifts and effective virus management.
• Singapore is viewed favorably for its pro-business environment and position in the recovery cycle, though currently facing challenges from a second wave of infections.
• Australia and New Zealand are considered mature, robust markets with strong institutional interest, though their recovery is tied to reopening tourism and business travel.

Forward-Looking Statements & Future Strategy

• A "V-shaped" rebound in trading activity is anticipated as markets reopen, though full value recovery and pricing discovery will take longer due to cash flow uncertainties.
• Investors plan to adopt a "buy-fix-sell" strategy to capitalize on distress, acting as equity partners or sole owners in specific assets where value can be created.
• Future investment strategies will prioritize stress-testing revenue streams and debt service coverage ratios more rigorously than pre-crisis levels.
• Government fiscal initiatives and quantitative easing are expected to stabilize the real estate economy by enabling tenants to maintain rent payments, potentially reducing the depth of distress opportunities.
• A "W-shaped" curve is a primary concern for capital-intensive developers, who fear a second wave of infection could invalidate recovery plans if activity restarts prematurely.