Real Estate

Global Real Estate: Cyclical & Structural Impacts of COVID-19

May, 2020 – 9 min read
As investors navigate global real estate markets in the months and years ahead, understanding the interplay between near-term cyclical weakness and long-term structural trends will be key.

The global pandemic is dominating the lives of populations around the world—changing the way we all work and live—while also creating heightened levels of uncertainty among investors. Given the breadth of the self-imposed lockdowns in most economies, we know with near certainty that the magnitude of near-term economic contractions will be unprecedented in modern times. We also know that the near-term outlook has significantly weakened for all real estate markets. The impact, however, will not be uniform as some sectors are undoubtedly more exposed than others, and some entered the crisis in a position of strength, while others were already heading down a path of structural decline. Understanding the interplay between near-term cyclical weakness and long-term structural trends will be key for investors as they navigate global real estate markets in the months and years ahead.
 

An Alphabet Soup of Recovery Scenarios

The duration of the COVID-19 is unknowable at this point, and consequently some property investors will likely choose to hold off on transacting for some time—a decision that, while logical, may result in the high opportunity cost of failing to invest during a period of dislocation. Indeed, the range of potential recovery scenarios is wide—from the familiar “V” and “U” shaped recoveries, to “W” (i.e. multiple waves of infections) and even “L” shaped recoveries in the worst of scenarios. While a “V” shaped recovery could see prices and valuations bounce back quickly—perhaps too quickly for investors to capitalize—a “W” shaped recovery could yield massive opportunities, but at the risk of seeing long-term structural trends derailed.

It is too early to assign likelihoods to such scenarios, given what we know currently. But barring the most dismal of medical outcomes, it is very likely that property values for sectors and strategies that benefit from long-term structural drivers will eclipse their 2020 levels in the years ahead—and as such, investors may want to shift their attention to analyzing the sustainability of these structural trends, and whether or not COVID-19 may put them at risk.

Want to read the full article?

View PDF

Paul Stewart

Head of Europe & Asia Pacific Real Estate Research & Strategy

Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Any investment results, portfolio compositions and or examples set forth in this material are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this material No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments. Prospective investors should read the offering documents, if applicable, for the details and specific risk factors of any Fund/Strategy discussed in this material.

Barings is the brand name for the worldwide asset management and associated businesses of Barings LLC and its global affiliates. Barings Securities LLC, Barings (U.K.) Limited, Barings Global Advisers Limited, Barings Australia Pty Ltd, Barings Japan Limited, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, and Baring Asset Management Korea Limited each are affiliated financial service companies owned by Barings LLC (each, individually, an “Affiliate”).

NO OFFER: The material is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This material is not, and must not be treated as, investment advice, an investment recommendation, investment research, or a recommendation about the suitability or appropriateness of any security, commodity, investment, or particular investment strategy, and must not be construed as a projection or prediction.

Unless otherwise mentioned, the views contained in this material are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Individual portfolio management teams may hold different views than the views expressed herein and may make different investment decisions for different clients. Parts of this material may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this material is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any service, security, investment or product outlined in this material may not be suitable for a prospective investor or available in their jurisdiction. Copyright in this material is owned by Barings. Information in this material may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.