Ernst & Young’s Seng Leong Teh joins the panel of speakers in Commercial Real Estate Asia Digital Conference

With the COVID-19 pandemic predicted as a cyclical event, Seng Leong believes that most real estate asset classes will go up and down in cycles 

Seng Leong assists multinationals, private equity and real estate funds, as well as government-linked entities in M&A, valuations, due diligence, and infrastructure advisory engagements across Southeast Asia.

Previously, Seng Leong was at Ernst & Young LLP in New York and PT EY Indonesia in Jakarta where he helped many private equity funds, conglomerates and entrepreneurs with their transaction requirements.

Seng Leong holds a Bachelor of Accountancy (Merit) from Nanyang Technological University, Singapore, and is a non-practicing member of the Institute of Singapore Chartered Accountants.

As one of the speakers in Real Estate Asia’s “Real Estate in the Aftermath of COVID-19: Trends and Perspective”, the military history books, long walks, and fast cars enthusiast shares his insights on real estate during—and after—the pandemic. 

What "due diligence" tips can you recommend to anyone who wants to invest in real estate after the COVID-19 pandemic?

The COVID-19 has accelerated demographic and consumer behavior, such as the current setup of work-from-home (WFH) arrangements and the need to move offline to online (O to O). Investors need to understand that the changes in the market forces also change the business model of the tenants in the assets that they wish to invest in.

One key area to look into is the quality of cash flow that comes from the quality of tenants. This will be important in ensuring that the assets continue to perform despite the crisis. 

From a commercial real estate’s point of view, it’s important to understand the impact of WFH, especially for those with large headcounts/footprints. This will be significant, given that flexibility will be the new theme going forward.

Where is digital transformation in all of this? Will it play an important role in the future of real estate and in what ways will it shape the industry?

In addition to sustainability where the real estate asset class has a large carbon footprint, digital transformation will also play a part in this setup. Your customers—whether they’re tenants in commercial offices or retail—are changing their business model. They will want to flex their leases and potentially limit the growth of square footage. So instead of spending on rent, they will need to redeploy their CAPEX to move their business virtually.

There are many themes within digital transformation—for example, O to O, big data, 5G, blockchain, etc—and some are clearer than ever before. Those who have not re-invented themselves are probably struggling now, while those who have pivoted earlier into different asset classes (e.g. data centers) are enjoying the benefits of the capital market.

How can the real estate industry bounce back after the crisis? 

There are clear winners and losers—the asset class that lost out is the retail sector, although we think that it is more nuanced, for instance, those who are serving essentials will benefit from it, but those with significant exposure to fashion will not see traffic/growth for a long while. The other sectors, such as the hospitality industry, will bounce back, although the timing is uncertain. However, we expect a V-shape rebound for hospitality assets. I see the COVID-19 as a cyclical event for most asset classes, and the value will go up and down in cycles.