The coronavirus outbreak worldwide should give international investors almost a deja-vu feeling. Although many investors are not looking back, the crisis currently ongoing is no different from the crisis that hit the industry in the period after 2008, which was directly caused by issues in the sub-prime lending market. We find stock markets decrease in a dramatic and rapid pace, but despite what many people believe, there isn’t a direct connection between stock market performance and real estate values. It´s the overall health of the economy that ultimately affects them both. As long as consumers feel confident about their jobs and income, they will continue to spend—and that includes buying real estate.
Nevertheless, investors being it institutional or private equity, start to feel the first effects of the corona crisis. All asset classes are affected by the corona situation, yields are deteriorating rapidly, especially in the retail and hotel classes. Offices and logistics (the latter will survive the longest) will follow automatically if this situation continues for months.
The most optimistic scenario is that further virus spread can be curtailed in the short term, and the real estate world can return to business as usual. The worst scenario is the persistent global panic, with many tenants seeing their existence endangered. This automatically influences the performance of the investor. The specter emerges of empty shops and bankrupt hotel chains, where the only salvation will be rental discounts, rent reductions, payment arrangements and the like.
Investors with a healthy financial structure and a reasonable loan to value ratio will survive this crisis, just as they did from 2008 to 2013. For investors who have sought the edge of financing options, I foresee further problems. The current reality does not differ from that of 10 years ago.