Event: ‘Capital flows will take a hit’

The immediate impact of the health crisis will be a sharp drop in transactions, but markets players must look beyond the short-term, experts agreed at Real Asset Media’s ‘COVID-19: Implications, Scenarios & Outlook for Real Estate’ briefing this week, the first event to be held online with a panel of speakers and a live audience.

‘Volumes will slow substantially in the period ahead, especially if the restrictions on movement last for another 6 months as some say,’ said Tom Leahy, Director of Market Analysis, EMEA, Real Capital Analytics (RCA). ‘Around 50% of deals in Europe involve a cross-border player, so the restrictions will inevitably have a negative impact’.

RCA’s prediction is that international capital moving into Europe will slow sharply, not just from China but from Singapore and South Korea as well. Gulf money is unlikely to come to the rescue this time, Leahy said, because there is a correlation between outflows from the region and the oil price. The recent plunge in the price of oil is likely to dent any appetite for investments in Europe in the near future. 

Looking at how the situation is evolving in China, which was the first to be hit by coronavirus, can give some idea of what to expect in Europe. 

According to RCA data, in the first two months of the year deal investment volumes in China fell by 50 per cent. ‘This is the order of magnitude we are likely to see in other markets,’ said Andrew Burrell, Chief Property Economist, Capital Economics, and at this stage it is difficult to predict how quickly the economy and the real estate market will respond. 

The picture that is emerging so far from Asia-Pacific is not positive, said Kim Politzer, Director, Head of Research, European Real Estate, Fidelity International: ‘We see a quick ramp-up in businesses opening but there is not enough work for them to do, so there is a double dip happening. We need to realize the extent of disruption in the system’.

As offices open again in China things are not quite returning to normal yet. ‘There are positive signs on the supply chain side, but order books are reduced,’ said Kevin Turpin, Regional Director of Research, CEE, Colliers International. ‘Ongoing deals are happening, but new ones are being called off and we have seen a price shift starting to come through. It is still early days, but things are shifting’.