In a report published by JLJ, Dr. Lai Boon Yu says the effect on aggregate real estate market activity in the Asia Pacific region could range from marginal risk to long-lasting implications depending on the duration and scope of the epidemic, but is likely to be more of the former than the latter.
"…We are of the view that the overall impact of SARS on real estate market activity in Asia Pacific is expected to be minimal, with a rebound by the fourth quarter in Hong Kong and Singapore and early 2004 in China," states Yu in his report. "…the major Asian economic hubs of Singapore and Hong Kong are seeing early signs of recovery in business activity and home sales while Shanghai has been relatively unscathed by SARS …, (reinforcing) the view that SARS will only be a temporary blip in the key Asian real estate markets."
The special paper outlined the real estate implications for the two scenarios under which SARS may unfold in the coming months. Yu believes in the scenario that has containment of the virus occurring by the end of June, hence his prediction for the resumption of normal business activity in the final three months of the year. Given that, Yu believes the office sector will not be impacted more negatively than it is currently.
"Upward revisions to GDP growth are expected and businesses may commence on selective expansion plans to take into consideration business continuity and contingency issues," according to his report. "In the short term, business contingency plans adopted to separate critical business core teams may result in a slight increase in demand for office space. Occupation strategies for some major corporations will reflect more planned and budgeted contingency working space for 2004."
The worst case scenario has SARS continuing to spread until the end of the year. China and Taiwan have the highest risk of entering this scenario given that SARS is still spreading in these countries, causing widespread concern and heightened paranoia, according to the report.
If that scenario plays out, Yu predicts there will be pressure on retail rentals, with prime retail centers that cater to tourists to be most likely affected while suburban malls continue to enjoy a relatively healthy traffic flow. On the office side, Yu says foreign companies looking to start up new operations in China would probably delay making decisions to do so, especially in Beijing, which is facing high office vacancy and SARS infection rates.
"Given slightly more positive signals from Beijing that the number of new SARS cases has fallen and that a regional network of governments to combat SARS is in place, we are more optimistic that the negative impact of the protracted contagion scenario, even if it unfolds for China, will be moderated," states Yu. "If the contagion does not spread to the central and western rural areas of China, we believe that the virus will be contained by year-end with minimal impact on the real estate markets in China."
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