Nonetheless, our valuation teams are busy and much of the work is related to refinancing, as investors seek to secure their debt position in the expectation that we are heading into even more difficult economic times. Banks, however, are very cautious, especially where a physical valuation has not been possible.

Some people insist the current upheaval means all assets should be revalued dramatically downwards, but of course it is not as straightforward as that. There is also a lack of transactional evidence for re-valuation, in many locations deals are simply not being done. Yet on the other hand, some markets have continued to trade extremely well at premium prices, such as the prime office market in Seoul, and the logistics sector throughout Asia Pacific. And so far, with government stimulus programmes and banks being reluctant to foreclose, we have seen very few, if any fire sales.

The most significant development we are seeing is a much more granular focus on lease covenant strength. Tenants are becoming more important than location or asset quality. Tenant access to liquidity and the strength of balance sheet are crucial. It is not enough for a tenant to be ‘blue chip’, investors in the current environment are scrutinizing not only the financial stability of a tenant, but also the long-term viability of their business model in the event of a prolonged global pandemic.

For example, your tenant might be a major law firm with a strong track record, but what if its client base is heavily weighted towards companies in retail or hospitality? Landlords are finding they need this depth of knowledge to identify the most resilient tenants.

More than ever before, investors are looking at property as a going concern rather than just a physical asset which produces a passive income.

It is not just ‘location, location, location’, but rather ‘cashflow, cashflow, cashflow’.

Further reading:
Savills Singapore Valuation & Advisory

Contact Us:
Martin Fidden