Global real estate prices have begun to adjust as the impact of the pandemic becomes clearer, UBS Asset Management has said.

Of the 332 markets UBS monitors, 30% reported a rise in yields during the second quarter.

An increase in office yields was reported for 16% of markets, including New York and Paris, while 51% of markets saw a rise in retail yields. For the industrial and logistics sector, yields were flat in 81% of markets and 14% experienced a decline.

In its latest real estate outlook report, UBS said valuations had fallen across the office and retail markets in Canada, Ireland, the UK and US during the second quarter.

Data from MSCI and NCREIF showed a 1% to 2% decline quarter-on-quarter across offices and between 5% and 9% across retail, the firm said.

At the all-property level, valuations dropped by 5% in the UK, 4% in Ireland, 4% in Canada and 2% in the US in the first half of 2020.

Further declines

UBS expects further “significant declines in retail values, smaller declines for offices”.

UBS added that at the beginning of August REIT prices were down by 20-25% across the main countries globally, while sectorally prices for hotels were down 55%, retail by 43%, offices by 27% and residential by 10%. Industrial assets continued to perform well with a 13% increase in prices for the year to August.

Across Europe, UBS reported, a growing gap between sellers and buyers over pricing as many markets and sectors still have valuation houses invoking material uncertainty clauses.

It is though expecting transaction activity to show some recovery during the second half of 2020 after global real estate investment volumes tumbled by 52% during H1.

During the first half of 2020, hotel volumes plummeted by 80%, office volumes by 56%, retail volumes by 62%, industrial volumes by 44% and apartment volumes by 33%.

In Europe, take-up in the office sector declined, but there was no increase in surrenders of active leases by occupiers. Vacancy rates therefore only rose marginally, meaning few places have seen rental declines, UBS said.

Brexit uncertainty

The exception has been in London, where rents have fallen in both the West End and City. UBS said this was due Brexit uncertainty continuing to check demand.

UBS added that it did not “envisage a world anytime soon where a significant proportion of office-based work is done fully remotely”, adding that it considered many of the recent statements by chief executives on the future of the office to have been “largely overdone”.

Even so, the firm expects the post-Covid office to become more focused towards providing interactive and collaborative spaces and meeting rooms instead of workspace.

This means “bland and functional desk-based office units will have a decreasing relevance going forward”, UBS added.