Yields’ expansion is the most likely scenario in the mid-term

Yields’ expansion is the most likely scenario in the mid-term

This was one of the scenarios drawn by the experts gathered this Thursday at the webinar organised by Cushman & Wakefield which highlighted the «Impact on real estate during the post-Covid-19». This yields’ expansion scenario should become clearer within the segments which were most affected by the crisis such as the retail and hotel segments since their revenues will be directly impacted, defended Luís Francisco, vice-President at MSCI. This is a perspective shared by Ricardo Pires, Head of Corporate Department at Crédito Agricola, who believes that «yields should increase and there should also be plenty of opportunities on the market».

The preliminary results of the sentiment survey carried out by Cushman & Wakefield reveal exactly that. Around 65% of investors – mostly Portuguese – who took part in the survey anticipate growth for yields in the mid and long-term. And it will be within the hotel, retail, office and student residences segments that that growth will be more evident, according to the results. On the other hand, the logistic and rental housing segments, as well as assets related to the healthcare segment, should remain more resilient in terms of yield fluctuation.

But it should be noted that the uncertainty remains within the current situation concerning real estate. It is known that the scenarios drawn for the mid and long-term are no more than assumptions which can change at any moment if the Covid-19 pandemic takes a different direction. This uncertainty was remarked by Pedro Seabra, Senior Partner at Explorer Investments, who, assuming an optimistic scenario in which the real estate market would recover in 12 months, considers the pandemic’s effect «on yields, rents and prices almost non-existent», but he warns that «if this scenario is extended, things will change». MSCI historical data indicate that «the biggest price adjustments are connected to economic recessions», said Luís Francisco.

What will come in the mid-term?

Despite being «difficult to forecast the turning points» within the real estate market, Luís Francisco believes that investors who have diversified portfolios and who bet on long-term rentals show more resilience to the crisis.

For Carla André, Managing Director at Reviva Capital, there are two fundamental factors in terms of acting within this uncertain market: flexibility and quickness.  In her opinion, these are «important aspects to identify opportunities and take advantage of them». In the mid-term, the market should receive «vulture investors who are already getting ready to invest in highly leveraged low-income assets», warned Carla André, highlighting that «it is noted that international investors are changing their strategy from value-added to opportunistic».

Although the hotel segment is currently in a «tragic» situation, the Senior Partner at Explorer Investments considers that «under a one-year recovery scenario the segment might return even stronger than it was before». This opinion is shared by Carla André who further added that «hotels have the advantage of offering experiences which cannot be bought online». The opposite occurs within retail. «Retail will be the most affected segment. A need to reinvent ourselves was felt, given the fear from investors on betting on the segment. Covid-19 was the trigger», explained the Managing Director at Reviva Capital.

In terms of the office segment, Ricardo Pires assumed that «the balance between offer and demand in Portugal will protect the segment». Pedro Seabra agrees that currently «there is a latent demand in the segment. Economic growth will influence office revenues. But there is plenty of liquidity to invest on real estate and, in particular, on the office segment».

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