Real assets may provide attractive cash flow versus current depressed bond yields, but one consequence of the coronavirus (Covid-19) could be a gradual dimishment in the appeal of prime office space and an acceleration in the devaluation of shopping malls. 

“I don't think we will just snap back to the way things were when the outbreak subsides,” said Daniel Jim, founder of Hong Kong-based Tripod Management, “I think the crisis, in the long run, will change how we live, so is it good or bad for real assets?”

Daniel Jim
Daniel Jim

Companies have had to adopt remote-working arrangements amid the outbreak, weakening the demand for expensive office space.

“At the end of the day, if employees are able to work wherever they are in the world as effectively, prime office space will probably see a weaker demand until they become less of a drag on running costs,” he told AsianInvestor.

A new analysis by real estate brokerage JLL on Monday (March 23) showed a rental decline in the overall office market in Hong Kong in February, citing a drop in leasing demand, with the outbreak prompting companies to postpose their relocation and expansion plans. The vacancy rate of local grade A office climbed 0.2 percentage point month-on-month to 6.3% at the end of last month.

Hong Kong recorded 357 confirmed Covid-19 cases as of Tuesday (March 24), while the chief executive Carrie Lam has earlier urged private sectors companies to allow employees to work from home.

As countries increasingly call on citizens to stay home in an attempt to slow down the spread of the coronavirus, the demand for office space could yet fall further, challenging the potential returns of these assets. The FTSE Nareit Equity Reits Index, in which office accounted for 9.86%, dropped 6.9% as of February’s end.


One potential outcome is that more traditional brick-and-mortar shopping stores end up potentially being occupied by logistics enhancement space or showrooms if people grow more comfortable with online shopping, said Jim.

One such example is local e-commerce platform HKTVmall, which has rented shops as pick-up centres for online orders.

“I doubt those vacant [retail] space will be taken over by traditional retailers anytime soon, but you might see tenants with a more novice business model renting these shops,” he said.

The coronavirus-induced global lockdown has crippled consumer spending at physical stores. In the US, for example, numerous brands have temporarily closed their shops as the country declared a state of emergency on March 13. The crisis, Jim said, is “just a nail in the coffin” for retail properties and shopping malls, which have been in decline over the years.

The Savills Prime Street Shop Rental Index fell across the board last year, with rents in shopping malls and street shops in Hong Kong dropping by 14.1% and 20.1% quarter-on-quarter in the fourth quarter respectively. 

A senior investment executive of a sizeable Bangkok-based insurer said the firm would avoid retail property as returns from such assets were more volatile.


As global central banks continue to battle the coronavirus outbreak by loosening their respective monetary policies, the low-rate environment will likely persist, nudging investors to hunt for better yields from assets including real estate and infrastructure. The Bank of Thailand, for example, cut its key interest rate again this year by 25 basis points to a record low of 0.75%.

The Bangkok-based executive, who declined to be named, told AsianInvestor the firm would go ahead with the plan to ramp up its exposure to onshore real estate and infrastructure funds over the medium-to-long term. He said the dividend yields on these assets looked more attractive compared to local government and corporate bonds but did not say by how much the firm would increase the allocation.

Thailand Prime Property Freehold and Leasehold Reit and the country’s Digital Telecommunications Infrastructure Fund, for example, has a dividend yield of 4.69% and 8.35% respectively, considerably higher than the yields on 10-year Thai government, which stood at 1.46% as of Tuesday (March 24).

“I would say that the more that you see yield compression happening across public markets, the more we can safely assume that Asian institutional investors will need to source their yield from somewhere else as their demand for yield won’t necessarily change,” said Shawn Khazzam, head of the Asia Pacific alternative solutions group at JP Morgan Asset Management.

In particular, regulated utilities and power assets under long-term contracts with monopolistic characteristics will be able to provide forecastable income cash flow.

“Today, many of the offices in Asia and globally, have adopted some sort of work from home arrangement and if you think about it, anyone who's working from home still needs water, electricity, heating,” he added.