The short-term economic impact of the COVID-19 crisis is clear, record beating volatility in GDP, looming job losses and unprecedented government spending: $10trillion and counting. Despite this, the property market has been surprisingly resilient this year. In this short video, Alex Price set out what we are seeing in the UK today and what we think it means for investors in the years ahead.
I am Alex Price of Fiera Real Estate and in this video I am going to set out what we are seeing in the UK today and the impact it will have for real estate investors
The short-term economic impact of the COVID-19 crisis is clear, record beating volatility in GDP , looming job losses and unprecedent government stimulus, $10 trn to date. Despite this, the property market has been surprisingly resilient this year.
Within the property sector, the lock down and associated transition to working from home, has led to a fall in office leasing, London was down 70% in Q3.
The retail sector has also seen a dramatic shift away from physical retailing, as shown by Tesco forecasting a 65% increase in online sales in 2020. The sudden shift is creating the highest level of retail related corporate insolvency in generations, from Intu to Debenhams.
Whilst the department store and shopping centres are dying however, the retail warehouse sector has done well, underpinned by strong store sales, lower property costs and the potential for last mile logistics alternative use.
These edge of town logistics units are replacing the High Street as the final link in the physical chain for moving goods to the consumer. It’s no surprise Savills forecast a need for 14m sq ft of new logistics space over the coming years.
The residential market is also booming, with prices now at a record high. This housing market will slow as jobs are lost in the months ahead, but with the densest and fastest growing population in Europe, don’t bet against a rise in UK house prices in the longer-term.
In the immediate future we predict a rapid growth in the residential rental market, as institutional investors with low cost capital seek income producing inflation linked assets. Lower required returns from institutions will hopefully lead to lower rents, although the cynic suggests it may simply increase land values.
Offices will remain a cause for concern but we are convinced that the reports of the death of offices have been exaggerated. It remains the premier place for innovation, collaboration and communication, so most organisations will still need accessible, high quality, and flexibility space even if we only go their part of the week.
Finally, in terms of values, the banks have shown a supportive attitude to date, even on defaulting loans, largely because of the limited ability to enforce. With the provisioning for bad loan rising in 2020, we expect the banks attitude to change, leading to an increasingly split market.
In town retail, leisure assets or lower quality offices, i.e. assets where income is uncertain, will see falls in values as banks force sales and sell to a buyer able to execute the required radical transformation .
However, where cash flow is more secure i.e. residential, industrial and grade A offices, distress will be limited by the quantum of cheap money, low interest rates and a growing population.