Since late February, the COVID-19 disease caused by the SARS-COV-2 coronavirus has emerged as a humanitarian issue of global significance, with hundreds of thousands of people and their communities affected. The World Health Organisation (WHO) now regards the outbreak as a global pandemic and the situation continues to evolve rapidly, as businesses and governments accelerate their responses to the crisis. Equity and bond markets have reacted sharply and remain highly volatile, reflecting a paucity of hard evidence about the impact on economic activity. A global recession now appears highly likely, albeit that the unprecedented nature of the crisis makes forecasting the severity, duration and nature of the downturn, and the trajectory of the subsequent recovery, extremely problematic – especially at this early stage. Our base case assessment of the impact on the real estate market now assumes that we will see significant further spread of the virus across and within most countries.

Executive Summary

• The COVID-19 pandemic is resulting in very real human, social and economic impacts. Historically, reduced population mobility during epidemics has had a greater economic impact than the illness itself.
• Governments are responding in different ways, but restrictions on population movement, public gatherings and social/leisure activities are now widespread. This will help slow the spread of the virus, but is resulting in a significant shock to business activity.
• Economic activity is highly globalized in nature – disruptions in one country or region are having ripple effects across multiple markets and sectors. It now appears likely that the global economy, and probably many countries, will experience a recession but it is unclear how deep and prolonged any downturn will be.
• Commercial real estate will see secondary impacts from reduced economic activity and “wait-and-see” disruptions as elevated uncertainty and risk will cause occupiers to delay business investment or expansion plans.
• Transaction activity of all kinds is likely to slow sharply for the duration of the crisis, reflecting practical constraints on deal completion as well as uncertainty about the longer-term outlook for the market. However, underlying demand for real estate investments remains generally high, with multiple sources of capital active in the market. We expect a bounce-back in both investment and leasing activity once the immediate crisis dissipates.
• Longer term, the changes that businesses and individuals will implement during the crisis will accelerate some trends already evident in the market, including deglobalization of supply chains and a shift towards online retail and flexible working practices in the service sector.