No.1 Real Estate Investment Opportunities Amid the Pandemic
After a decade-long economic growth, the COVID-19 pandemic has pushed regional and global economies into recession. At the same time, it is also an excellent opportunity for investors to look for assets with re-pricing potential. This article mainly analyzes the investment potential of various property types based on the performance of property asset acquisitions during previous economic recessions, combined with the impact of this pandemic. The main sources of acquisition opportunities are companies that have cash flow problems due to the economic recession and have to sell assets at low prices to release liquidity. Another potential purchase opportunity comes from funds with a fixed exit period (usually five years). Since these funds must return capital to investors at the end of the five-year holding period, they cannot continue to hold assets through the downturn and wait for the market to recover before selling. Investors can pay attention to the property assets purchased by these funds during 2015-2016 to discover potential acquisition opportunities.
No.2 Analysis of Different Property Investment Opportunities:
Hotel Properties (Hospitality)
The hotel industry has been relatively hard hit by the COVID-19 pandemic, and prices will experience a certain degree of correction. Due to the considerable uncertainty regarding the duration of the pandemic crisis and when the tourism industry can return to its previous level, a considerable number of hotel asset holders may seek opportunities to exit the industry and instead choose to invest in other more stable asset classes, thereby increasing the number of hotel properties for sale. Therefore, compared to other asset classes, sellers are more willing to sell at low prices, and the price difference between buyers and sellers may be relatively small, facilitating transactions. However, due to the good economic fundamentals before the pandemic, the number of travel trips has repeatedly reached new highs, continuously increasing the demand for high-quality hotels, ultimately resulting in a relatively high new supply of hotel assets. The long-term potential of the hotel industry is relatively strong because once a vaccine is developed, the global economy resumes growth, and international tourism is likely to recover rapidly and even rise to new heights.
Retail Properties
Due to the stay-at-home orders implemented by all states in the US during the pandemic and the requirement to suspend non-essential businesses, the entire retail industry has also been severely affected. Retail properties are typically held by some investors for the long term, but the recent requirement of maintaining social distancing has had a significant impact on the rent and occupancy rates of retail properties, which may lead some retail property owners to consider divestment, thereby increasing the number of properties for sale. Therefore, sellers have the willingness to reduce prices, and the possibility of pricing mismatch between buyers and sellers is low. The new supply of retail properties is not high, and future new retail properties are mainly part of large complex projects. The long-term potential of this industry is relatively strong, and shopping centers with an experiential retail concept and good management saw increasing foot traffic before the pandemic. After the crisis passes, foot traffic is likely to return.
Office Properties
The prices of office properties are expected to be moderately affected by the economic recession because the current prevalence of remote work has suppressed the urgent demand for new office space. Currently, a large number of new office properties enter the market every year, so the market supply is also relatively abundant. Although owners with liquidity problems or fund exit pressure may lower their price expectations, if the owners have the right to extend the holding period, there may be a certain degree of mismatch in prices between buyers and sellers in the market. In the short term, social distancing policies combined with tenants’ conservative capital strategies will continue to suppress the market’s demand for office space. However, considering that face-to-face communication can promote creativity and gain a competitive advantage, office properties still have long-term investment potential.
Industrial Properties (Industrial / Logistics)
Although the manufacturing and logistics industries have been affected by the brief supply chain disruption caused by global lockdowns, the price performance of industrial properties has been very stable. Since a considerable proportion of industrial space is self-used by the owners, there are fewer industrial properties for sale in the market compared to hotels and office properties. Although sellers are more willing to stick to the market price, buyers in this period may require a larger discount before they are willing to purchase, increasing the price mismatch between buyers and sellers. The long-term potential of industrial assets is mixed.