Commercial property transactions decline on virus impact, slower growth

COMMERCIAL property transactions were down year-on-year in both value and volume in the first quarter of 2020, as the sector was affected by the impact of fading economic growth prior to the onset of the Covid-19 pandemic.

According to the National Property Information Centre (Napic), a total of 5,025 transactions worth Rm5.11bil were recorded in the commercial property segment during the first quarter of this year.

This was down by 27.9% in volume and 24.4% in value compared with the first quarter of 2019.

An industry observer says the local commercial sector, which was already affected by oversupply of space, was adversely impacted by the Covid-19 crisis. “The pandemic created an unprecedented level of uncertainty in the market, causing many people to adopt a wait-and-see approach.”

According to Napic, a total of 810 shop units were completed in the first quarter or this year, down 47% from the 1,517 units completed in the previous corresponding period. During first three months of 2020, a total of 535,332 sq ft of shopping complex space was completed, down 60.5% from the 1.35 million sq ft that was completed during the first quarter of 2019.

However, the number of completed purpose-built office space surged 380% to 2.68 million sq ft in the first quarter of this year compared with 559,260 sq ft of space in the previous corresponding period.

CBRE Research in a report on the Asia Pacific Commercial Real Estate, says office demand with the region had weakened significantly owing to the double impact of fading economic growth prior to the onset of Covid-19; as well as the abrupt slowdown in economic activity resulting from lockdown measures imposed to contain the pandemic.

“Demand in Greater China and Singapore was first to be affected, with net absorption in Mainland China turning negative in the first 2020 for the first time since CBRE began tracking national office data.

“Other markets saw a slowdown in leasing activity towards the end of the quarter as lockdown and social distancing measures came into force.

“The full extent of the decline in demand will become more visible in the second quarter of 2020.”

CBRE Research says cost savings will remain top of the occupier agenda.

“Even if Covid-19 is brought under control relatively quickly, leasing demand will take some time to recover to pre-outbreak levels owing to rigorous approvals for capital expenditure.

“Operational resilience will be a top priority in the coming months.

“Short term downside risks to office demand include more headcount reduction, along with faster consolidation in the flexible space industry, which could trigger more merger and acquisition activity and lead to consolidation as well as the closure of centres.”

Over the past five years, CBRE Research says the tech sector has emerged as the major driver of office leasing demand in Asia Pacific, a trend expected to continue in the current cycle.

“In particular, the prominent and invaluable role technology has played in supporting remote working during lockdown restrictions is likely to generate additional office demand from firms providing these applications. “Although large occupiers are likely to accept higher levels of remote working in future, demand for flexible space is unlikely to diminish, ensuring it remains a key component of corporate real estate portfolios.”

CBRE Research notes that the imposition of country lockdown measures and social distancing protocols has led to the widespread adoption of home-working.

“Although there remain some challenges around homeworking, such as the absence of in-person interaction, distraction from family members, poor connectivity and a lack of home space, the trend is expected to become a permanent feature of the AsiaPacific office landscape.”

Combined with increased vigilance around health and safety, CBRE Research says a more fluid office-based workforce will require occupiers to re-think their workplace requirements, particularly workstation size, desk spacing and meeting room and social area capacity.

“This will necessitate a reassessment of occupancy levels and revision of allocations to open and enclosed space,” it says.