Coronavirus could end up having a much bigger impact on the property industry than just the postponement of Mipim.

The decision to move the event to June came at the end of one of the worst ever weeks for global stock markets. UK property shares were not immune to the rout, with many suffering double-digit falls.

Investors are clearly nervous, not least because it is so difficult to quantify the threat posed by coronavirus.

The spread of the virus in China shows how the UK market could be affected if the situation escalates. Henry Chin, head of research for APAC and EMEA at CBRE, says major retail landlords in China, including Wanda, China Resource and Seazen, have announced temporary rent cuts to ease the pressure on tenants.

Chin thinks the hotel and retail sectors will be hardest hit but that other sectors will not be immune. He predicts that office leasing in China will be slow in Q1 2020. “[However], any impact should be short-lived, if the virus remains relatively contained,” he adds.

There are signs that the virus has already had an impact on some UK retail locations. In February, the number of Chinese visitors to Bicester Village, Oxfordshire (pictured), fell by about half to 5%, according to mobile phone data from Huq, shared exclusively with Property Week.

In a briefing note on Monday, Barings said retail would be among the worst affected sectors, but that some sectors could benefit.

“The most impacted real estate sectors are likely to be travel, tourism and trade-orientated sectors – hotels, serviced apartments, restaurants, leisure, sea and airport logistics spring to mind,” it said. “But ecommerce might see a boost, benefitting urban logistics operators, should consumption shift away from public spaces.”

Barings added that further quantitative easing would support pricing and investors might shift their focus to higher-quality assets.

However, with the scale of the virus difficult to predict, both investment volumes and leasing deal numbers are likely to fall.

“In the short term, we anticipate some pull-back in deal volume in the first quarter as investors delay deployments and review pipelines,” a JLL source says.

Supply chains disrupted

There is also a danger that development projects could be affected by the virus because of disruption to supply chains.

“From a global perspective, we are seeing a significant impact on supply chains, especially those with suppliers in Asia,” says Carolina Carlstedt, a Hong Kong-based lawyer at international law firm Bryan Cave Leighton Paisner (BCLP). “This is impacting the procurement of construction materials such as concrete and steel, vital to most construction projects.”

As the outbreak spreads in Europe, the virus is likely to affect UK-based construction projects, she points out. Lockdowns and quarantines are already being enforced in Italy, where the number of infections has risen.

“We may start experiencing issues in obtaining specialist materials such as metal and marble that are usually sourced from Italy,” says Carlstedt.

In practice, she recommends sourcing alternative suppliers based outside the affected areas, but acknowledges that “this may be difficult in reality”.

BCLP is advising clients to protect themselves from the consequences of future outbreaks by amending existing contracts and ensuring that any ‘force majeure’ provisions in new contracts cover disease epidemics and pandemics.

‘Force majeure’, which means ‘unforeseeable circumstances’, has no recognised meaning in English law, so how it is applied in contracts depends on individual agreements. Largely, it is the contractor’s responsibility to get materials and labour to a site. In exceptional circumstances, the contractor will be relieved of the obligation unless the contract says otherwise, which is rare according to Carlstedt.

At this stage, it remains to be seen whether such clauses will even be relevant, but investors and developers should prepare themselves for all eventualities.