COVID 19: The trade-off between staying safe and getting back to work

An economy in lockdown has significant effects for investors in real assets. In this data illustration, our real assets research team consider the benefit of businesses returning to their usual locations against the risks of doing so.

2 minute read

COVID 19: The trade-off between staying safe and getting back to work

Governments around the world are wrestling with the ultimate catch-22: keeping their populations safe during a global pandemic, while trying to get economies back on track after what could be the sharpest contraction since the Great Depression.1

There is evidence that easing lockdown measures even slightly, without any accompanying containment plan, would accelerate the spread of COVID-19 to an unmanageable degree. In principle, it might be possible to remove some measures while retaining others, to keep the reproduction number of the virus below or very close to one.

A return to ‘business as usual’, with companies operating again from their ‘normal’ locations, is a complex issue

A return to ‘business as usual’, with companies operating again from their ‘normal’ locations, is a complex issue; one that real asset investors are following intently. Portfolio managers want to know which real asset markets are likely to return to work fastest to assess how quickly income generated on specific assets will recover.

Considering this, we have created a framework (Figure 1) that ranks industry sectors relevant to European real assets investors by the benefits of returning to their usual workplace (shown on the x axis) against the risks of doing so (shown on the y axis).

As Figure 1 shows, there are higher benefits to being open for “utility-like” sectors favoured by infrastructure and long-income real estate investors – such as power, hospitals, schools – while the relative risks are lower. Consequently, many of these sectors have remained open throughout the crisis (shown by the green dots); we would expect other assets in these areas that have closed to reopen first.

Figure 1: Open for business?
Figure 1: Open for business?
Source: Aviva Investors, May 2020

Within infrastructure, transport assets will be among the most challenging to fully reopen while the pandemic persists. For example, it has been reported that London Underground could only operate at 15 per cent of normal capacity to maintain effective social distancing; for buses this figure would be even lower at 12 per cent.2 Similar challenges will apply to air travel.

In the waste sector, local authorities initially closed many household waste reuse and recycling centres; however, an increase in fly-tipping has highlighted their essential nature, leading the government to suggest they should reopen.

Meanwhile, traditional real estate tenants can typically be found in the top left of the chart; these are businesses that have been heavily impacted by the lockdown, but also face the highest risks to reopening. Here, we find discretionary retail and leisure tenants, as well as office occupiers in financial services and media, all of which have significant operational demands. The benefits to society of these sites reopening is low in the short-term given the options of shopping online or working remotely.

The prospects are more positive for logistics and manufacturers of essential products. Although occupiers may be impacted by disruption to global supply chains and labour markets, people are more dependent on e-commerce during this period of enforced social isolation. This provides support for the sector now but is a trend that is likely to continue long after COVID-19.

Want more content like this?

Sign up to receive our AIQ thought leadership content.

Apologies, this content is currently unnavailble.

Please enable javascript in your browser in order to see this content.

I acknowledge that I qualify as a professional client or institutional/qualified investor. By submitting these details, I confirm that I would like to receive thought leadership email updates from Aviva Investors, in addition to any other email subscription I may have with Aviva Investors. You can unsubscribe or tailor your email preferences at any time.

For more information, please visit our Privacy Policy.

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL) as at May 12, 2020. Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment.

In the UK & Europe this material has been prepared and issued by AIGSL, registered in England No.1151805. Registered Office: St. Helen’s, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority. In France, Aviva Investors France is a portfolio management company approved by the French Authority “Autorité des Marchés Financiers”, under n° GP 97-114, a limited liability company with Board of Directors and Supervisory Board, having a share capital of 17 793 700 euros, whose registered office is located at 14 rue Roquépine, 75008 Paris and registered in the Paris Company Register under n° 335 133 229. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material.  AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1Raffles Quay, #27-13 South Tower, Singapore 048583. In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 30, Collins Place, 35 Collins Street, Melbourne, Vic 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is registered with the Ontario Securities Commission (“OSC”) as a Portfolio Manager, an Exempt Market Dealer, and a Commodity Trading Manager. Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”).  AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.

Related views