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Think Asia Pacific cities 2020 outlook
The medium-term outlook is also less certain. Unlike in 2003, when the pullback in growth from SARS lasted only a quarter before real activity rebounded strongly, a return to trend growth may not materialise as quickly. The headwinds will be much greater, noting that in purchasing power parity terms, the Chinese economy is more than four times bigger, with a more than five-fold increase in the number of middle-class households (income of between US$35,000-70,000 per annum) and is much more interconnected with the rest of the world. At 20% and 37% of global GDP respectively (from 9% and 21% in 2003), China and Asia Pacific’s weight suggests a higher risk of economic and market dislocation from the rest of the world this time. Forthcoming fiscal and monetary policy support will help to mitigate further downside growth risks across the region but only to the extent that pent-up demand in the second half will recoup some of the lost H1 output.
All said, while regional growth this year is likely to come in below initial expectations, a stronger demand picture is likely to surface in 2021 with growth running significantly above trend. The Covid-19 outbreak will stall, but not derail, the longer-term positive structural trends and the deep set of investment opportunities across Asia Pacific.
Office sector overview
- Business and leasing activities to slow due to high business uncertainties.
- Offices in Tokyo, Seoul and Australian east coast to remain attractive.
- Flexible workspace and smart buildings to enjoy structural tailwind.
Retail sector overview
- Retail sector is among the hardest hit by the virus outbreak; physical space is feeling the pinch as stores shutting down/shortening hours, and landlords offering rental relief.
- Near-term private consumption to be suppressed, but subsequent rebound is expected in H2 2020 with the release of pent-up demand.
Logistics sector overview
- Trade and manufacturing to take a short-term hit.
- A surge in logistic demand in e-commerce, food and pharmaceutical sectors.
- We recommend well-built and well-located last-mile assets in Seoul, Tokyo and Sydney.