Kazakhstan infection rates declined somewhat after suffering a massive COVID-19 resurgence during June, which lead to state authorities reimposing strict quarantine lockdown measures. Despite such, as of the end of July the number of registered cases peaked at 89,000, however, daily infection rates declined from 4.1% to 2.1% over the past 14 days of quarantine regime. The emergency lockdown has been recently extended for a further two weeks to ensure that infection rates do not increase.
The Kazakhstan CRE market is challenged by the current COVID-19 restrictions in place. Not all CRE market segments have been equally hit. The industrial and warehousing market is proving to be by far the most resilient sector, whilst the retail and hospitality market performance in H1 2020 has been severely adversely impacted, as a result of lockdown measures, including widespread shop closures and travel services ban.
The level of uncertainty in the economy is currently at an all-time high, with the trajectory of the recovery difficult to forecast. Whilst the national economy is not expected to bounce-back immediately after COVID-19 confinement measures are eased or ceased, continuing national currency depreciation and subdued business activity have the potential to derail CRE market recovery.
Kazakhstan is enduring a second wave of COVID-19. As the number of infections countrywide soared to almost 42,000, from about 5,000 cases registered in mid-May, when confinement measures were significantly eased, State authorities imposed a further 14-days lockdown commencing 5 July to battle the surge in coronavirus cases. Under the latest quarantine regime, all non-essential businesses and public venues are either temporarily ceased or have significantly reduced operations; in-country bus and railway transportation has been suspended in sections, while domestic and international airline services continued operations, although with the adoption of reinforced health, safety, and density restriction requirements. 80% of businesses turned to remote working mode with the workforce being recommended to stay at home while quarantine restrictions are in place. Last week, when the number of confirmed cases surged to over 60,000 with nearly 370 deaths, the lockdown was officially extended for an additional two weeks.
Strong involuntary measures implemented to combat the coronavirus outbreak have severely impaired economic activity. Unabated, business interruption and declining business confidence present challenging times for the local CRE market performance, which continues to experience a slowdown in activity. The occupier driven market persists with increasing tenant incentives.
It has been a month since the Government ceased restrictions on lockdown, yet the number of confirmed COVID-19 infections continues to progressively rise. As of 22 June, the statistics of officially registered COVID-19 cases across the Republic has passed 16,000 but the true number of infections is likely to be much higher. In response, state administration has reduced visiting hours in F&B and retail outlets with complete closure of non-essential businesses during the weekend (20-21 June). Travel restrictions are still in place: Kazakhstan borders remain closed to international travel until July.
Backed by increasing statistics of COVID-19 cases the imposed quarantine measures could be strengthened further if the epidemiological situation in the region regresses.
Kazakhstan is moving ahead with quarantine easing. All airline and railway services across the country have now resumed to normal operation. Business activities are being restarted. On Monday 25 May shopping and entertainment centres, non-food markets, hotels and in-house F&B facilities finally reopened for business, although with adoption of reinforced health, safety, and density requirements. Indoor sport & leisure facilities, food сourt restaurants will resume later. Borders remain closed. Strict quarantine measures could be restored at short notice if the epidemiological situation in the region regresses.
Due to weakened consumer purchasing power and declining business confidence the real estate market players continue to wait and see.
Following 2 months of nationwide lockdown the Government has recently declared an end to the State of Emergency. The quarantine regime, however, was extended until the end of May, although with some easing to the earlier imposed strict measures.
Business activities are gradually being restarted in stages. Domestic flights to the capital and regional centres have resumed. Small and medium scale service enterprises, as well as stand-alone non-food outlets of up to 2,000 sq m, have now reopened for business. Shopping and entertainment centres, hotels, indoor sport and leisure facilities, as well as in-house F&B operations will resume later, once the epidemiological situation in the region is satisfactory.
The impact of COVID-19 on the economy and declining business confidence will present challenging times for the local real estate sector. While there is still uncertainty, the market players will continue to adopt a wait and see approach and, meanwhile, revise the future strategies to reflect the new normal.
Given the economic implications of COVID-19 and the sharp reduction in oil and gas prices, the Kazakhstan economy has been severely hit in the past few weeks. Following a month of near total lockdown, some easing of quarantine measures and a gradual revival of business activity across the country are expected later in May.
The retail and hospitality sectors are in a state of acute crisis with a slow and difficult recovery ahead. Despite the support offered by the State to some affected businesses, not all operators will be able to survive a prolonged forced closure. The perceived post-pandemic surge of consumer activity will be delayed and short-lived due to limited financial resources and a reshaped tourism landscape.
Offices are more resilient to the recent challenges, however, will later have to embrace the rapidly evolving agile working practices. Rental concessions have been negotiated individually and typically only for the period of the official quarantine. Fortunately for industrial real estate, low vacancy and increased demand for storage and distribution space will continue to stabilise the market indicators.
Amid low investment activity in recent years, the impact on capital markets transactions will not be particularly noticeable. The market players generally have adopted a ‘wait and see’ approach.