JLL. COVID-19 Global Real Estate Implications

The outbreak of COVID-19 and its rapid spread across the globe has taken many by surprise, and businesses, communities and governments must now confront the reality of the seriousness of the situation. There is a wealth of information (and misinformation) to be consumed on a daily basis and, in such a fluid situation, the facts and consequences are changing quickly. While individuals and businesses remain focused on health and well-being, this paper will highlight the potential implications for real estate.

In the short term, the impact on global economic growth is undeniable, with those countries that are the most advanced in the outbreak already feeling the effects. At the time of writing, the consensus forecast is for a sharp shock to the global economy in the first half of 2020, followed by a bounce-back – reminiscent of the recovery after the SARS outbreak in 2003. Although the immediate hit to demand has been very evident in the retail and hospitality sectors, certain industries are more susceptible to the disruption of supply chains. Disruption has already started in sectors such as automotive, aviation, chemicals and consumer goods, and the full effects have yet to filter through. Conversely, pharmaceuticals and healthcare are most likely to experience a surge in demand.

Health authorities, governments and financial institutions globally are uniting in their goal of protecting and treating their populations, containing the spread of the virus, and ensuring the stability and health of businesses. Many central banks possess limited ammunition, but further rate cuts and quantitative easing, targeted liquidity support, and macroprudential forbearance will provide some cushioning to the slowdown. Fiscal policy measures could be implemented, yet they would likely be most effective in targeting industries most acutely affected by a loss of revenue and higher costs.

Our current base case is guarded. The further the outbreak widens and the longer it persists, the greater the chance of a more prolonged impact on the global economy and, by extension, real estate markets. At this point it is difficult to separate the actual current and likely economic impact from the fear-gripping news sources and financial markets. The exact trajectory of the outbreak and the resulting economic effect is unknowable. We suggest a scenario planning approach, rather than betting on any bold predictions, with a focus on preparedness for either a mild to moderate slowdown that is transitory in nature or for a more severe and sustained slowdown.

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