Property Funds and REITs focus on investing in real estate and primarily generate income from rent. Funds that invest in office buildings and warehouses/factories are likely to be less affected by the spread of Covid-19 compared to those investing in retail spaces, convention centers/exhibition halls, or properties in the tourism sector. At this point, readers may wonder which funds investing in office buildings and warehouses/factories are worth considering.

One factor to consider, especially during Covid-19, is the type of business of the tenants. Tenants of office buildings and warehouses/factories come from various industries, renting space to conduct their businesses. If tenants struggle to survive, it will impact their ability to pay rent, leading to an increase in the Vacancy Rate in the future, which will affect profits and the ability to pay dividends of the fund. It is clear that most businesses have been impacted by Covid-19, but there are certain sectors that have seen significant growth during this period, such as:

  • Companies providing food delivery and online shopping platforms, such as LINE MAN, Grab, Shopee, and Lazada, which have seen a substantial increase in service usage for home food delivery and product orders due to restrictions on restaurant and shop operations during curfews.
  • Insurance companies, as there has been a significant increase in demand for insurance, particularly Covid-19 and various health insurances.
  • Companies selling health products and medical equipment, such as face masks, hand sanitizers, and face shields, which have seen higher demand than usual.

According to data from McKinsey & Company, there are tenants in sectors expected to be heavily impacted by Covid-19, such as:

  • Aviation and Tourism (Air & Travel) and the Oil and Gas sector, as lockdown measures have reduced travel and tourism, affecting demand and global oil prices.
  • Banks, as the quality of corporate and personal loans may deteriorate due to impacts from Covid-19, leading some companies to shut down and lay off employees. The National Economic and Social Development Council [1] has predicted that Thailand could see up to 8.4 million people unemployed due to the Covid-19 outbreak.
  • Automotive & Assembly, Apparel, Fashion & Luxury, and Real Estate sectors, as Covid-19 has reduced purchasing power and demand for high-value or luxury items, or slowed down due to low consumer confidence.

Global Stock Returns by Industry Type

Note: YTD data as of April 2, 2020

Source: Corporate Performance Analytics, S&CF Insights, S&P Global, and McKinsey & Company

However, tenants in sectors heavily impacted by Covid-19 may seek to negotiate rent reductions or choose not to renew their leases with the properties of Property Funds and REITs. Investors can find information on Tenant Profiles in the annual reports and presentations of these funds. For example, information on the types of businesses of property tenants includes:

Nonetheless, the type of business of tenants is just one factor that investors should consider when investing in Property Funds and REITs. Investors should conduct further research before making investment decisions.

[1] Source: National Economic and Social Development Council: Thailand Social Condition Report Q1 2020, data as of May 28, 2020