Repurposing properties on the uptrend amid pandemic, says Knight Frank

EdgeProp Singapore |

September 15, 2021 3:51 PM SGT

(Credit: Samuel Isaac Chua/ The Edge Singapore)

SINGAPORE (EDGEPROP) - Covid-19 has disrupted our way of life, and along with it, how we use buildings. Across Asia Pacific, there has been a “massive move” to repurpose properties, spurred by dwindling property incomes and market values, says real estate research consultancy Knight Frank.

The move to repurpose assets has been driven by a wave of lockdowns that have exposed the weaknesses of certain buildings over others, resulting in a two-tier market where more resilient properties hold their value, while non-prime assets start to see their values deteriorate, Knight Frank explains.

The most common case of asset repurposing involves converting office and hospitality assets into living sectors, such as build-to-rent or residential projects. Older industrial spaces have also been converted to business parks and data centres for more value, while some retail and hospitality properties have been repurposed into living sectors, offices and industrial spaces.

The trend of repurposing assets has played out differently in different countries. In Seoul and Tokyo, building owners are actively looking for opportunities to convert hospitality assets into offices and co-working spaces, says Knight Frank. But the same sectors are not in favour in cities like Kuala Lumpur and Shanghai. Instead, in those cities, a structural oversupply of the office market has led landlords to explore converting older office stock into senior living spaces, specialist hospitals and residential apartments.

In Australia, investors are seeking ways to cater to the industrial and logistics sectors, amid the sustained strength of these industries through the pandemic. This is especially so in urban infill areas where buildings can be repurposed to meet rising demand for last-mile logistics facilities. This has also led to the purchase of retail and leisure assets, with the end goal of repurposing these assets for industrial and logistics use.

Push to repurpose assets

One of the key reasons pushing property owners to repurpose their assets include the uncertainties surrounding occupier demand. Some 75% of the global occupiers surveyed by Knight Frank expect that Covid-19 will have a long-lasting impact on their real estate over the medium to long term.

In the next three years, 54% of occupiers expect F&B offering to be in demand, followed by healthcare facilities (46%) and gym facilities (39%). With the adoption of hybrid working models potentially causing a decline in occupier-office demand, “quality is likely to come into focus, driving a flight-to-quality trend”, says Knight Frank. However, as it could be difficult to reposition certain assets, some owners may instead choose to tap into government incentives to repurpose the buildings to mixed-use developments.

The role of e-commerce also has a huge impact on retail properties, which has been emphasised during Covid-19 lockdowns. “Even if the lockdowns across the region are eventually eased, changes in consumer behaviour will likely outlive the pandemic. Footfalls at physical retail stores might not recover to the pre-pandemic levels with consumer spendings shifting towards necessities and away from discretionary items in the near term,” the consultancy says.

“This profound shift means that retail properties, especially those that were struggling before the pandemic, may never regain their pre-Covid values.”

Another reason pushing property owners to repurpose their assets is the weakening of tourism and its impact on hospitality assets. In 2020, international tourist arrivals to Asia Pacific fell to 84%. Over the same year, tourist arrivals to Hong Kong and Singapore declined by 94% and 86% y-o-y respectively.

As a result, hotels took the hit with occupancies across the region averaging between 20–30% throughout 2020, leading to large declines averaging over 50% in revenue per available room (RevPAR) for most major hotels in Asia-Pacific, highlights the firm.

Building owners have also repurposed their properties to expand on rising market values. The industrial sector, for example, has emerged a winner amid the pandemic, as the rise in e-commerce led to a demand for logistics and data centres.

The greater importance placed on life science has also increased the need for high-spec biomedical manufacturing facilities, says Knight Frank. German biotech firm BioNTech has set up its regional headquarter and vaccine manufacturing facility in Singapore, with plans for completion by 2023.

Environmental, social and governance factors also play a key push. Buildings with the highest local green certifications can command price premiums of as high as 20%, compared to similar buildings without green ratings, according to a study by the World Green Building Council.

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