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COVID-19: UK Real Estate Perspectives

COVID-19: UK Real Estate Perspectives

Digby Flower • 24/03/2020
As the COVID-19 pandemic envelops the globe, we are committed to providing our clients with up to the minute intelligence and commentary as to what is happening in the real estate markets.

I hope that you had the opportunity to attend our recent global client webcast on the subject. To add colour on how this is affecting and might affect markets in the UK we have asked a number of our senior leaders and experts in the UK to write short, pithy perspectives and offer their insight of the current situation.

Richard Pickering sets the scene, asking whether this is a ‘Catalyst for Change’. He considers how, once the dust settles, things might change more permanently.

Greg Mansell assesses the Government’s ‘Crisis Playbook’. Lessons from the Global Financial Crisis have clearly been learnt and are reflected in the very rapid timing of the introduction of emergency measures, the daily escalation of these measures as the crisis has deepened and the coordination between The Treasury, The Bank of England and the Department of Health.

This will, of course, put the public sector and public sector real estate in the spotlight, writes John Keyes in his article, ‘The Public Sector Steps Up’. In the very immediate term this is about creating enough hospital bed space. In the medium-term it is about space the enlarged civil service needs to support rebooting the economy. In the long-term lessons will need to be learnt and more resilient hospital and health space created.

The sector of the property market most immediately and acutely hit by events has been retail. Discussing ‘Strains, Shifts and Spikes’ Paul Durkin observes that the virus is likely to cause a sharp acceleration of business failures against a backdrop of challenges, including adapting from in store to online. Friday's enforced closure of pubs, restaurants and leisure operations will also have a profound effect.

This is reflected in Paddy Knapman’s commentary upon the retail capital markets ‘A Blow to Confidence’ where a nascent recovery particularly in the retail parks segment has been stopped in its tracks. A turnaround will be dependent on a return to stability where investors have confidence in the income streams retail assets produce.

Addressing ‘Challenges and Opportunities’ in the logistics sector, Rob Hall and Richard Evans note ‘that whilst some transactions have faltered in the logistics and industrial market it is showing some resilience’, particularly from those with long term strategic requirements in the pharmaceutical, nutrition, sports and leisure and public sectors.

The focus, however, of the moment is on the immediate short-term requirements of the food sector to accommodate the shift to online brought about by the pandemic. This trend is forecast to continue in the medium-term as education during the crisis leads to greater online demand for food. The longer-term prospects for this sector are also strong as the exposure of weaknesses in global supply chains leads to reshoring of manufacturing.

Low office vacancy rates in all of our major cities will give these markets greater resilience than in previous economic downturns. In his note on ‘Assimilation and Acclimatisation’, Richard Howard makes the point that whilst some smaller deals are not being completed, many of the larger pre-lettings are progressing against a background of competition for larger units of space in an undersupplied market.

Similarly, Ben Cullen, discussing ‘Occupier Decision Making’, sees a period of intense activity once we are through the current hiatus as occupiers scrabble for space. He addresses the subjects of timing, opportunities, short term pain, and what’s next.

In parallel with the office occupational market, the fundamentals for the London capital markets are thought to be sound with a basic analysis showing strong international demand and low levels of supply. More nuanced commentary on ‘Temporary Dislocation’ from Richard Womack and Andrew Hawkins shows a market moving quickly into a new cycle where physical real estate will find favour against a dislocated market for equities and treasuries.

Finally, in her note on how COVID-19 will affect the ‘Future of Work and Workplace, Nicola Gillen observes how an enforced period of working from home is making us overcome inertia and accept what for some has long been a way of life. She argues managers will now see the productivity, health and wellness benefits whilst businesses will see scope for cost saving. Most profoundly Nicola contends that this will reduce the size of offices in the future and change the nature of what we do there to a focus on meeting, sharing and socialising whilst a lot more of the ‘work’ takes place at home.

Please do get in touch; we stand ready to help you navigate through these uncertain times.

UK Trends & Insights

black swan
Insights • Commentary

A Catalyst for Change

The problem with black swans, a term coined in this context by the economist, Nassim Taleb, is that by definition they are unpredictable. No amount of business planning can effectively prepare one for something about which we can have no knowledge.
Richard Pickering • 24/03/2020
Bank of England bank notes
Insights • Economy

The Crisis Playbook

Life was normal a month ago. There was a nagging feeling that COVID-19 could change all that, but it wasn’t a big concern. Since then, the unravelling of freedoms we might have taken for granted has been rapid. 
Greg Mansell • 24/03/2020
nurse with gloves and vaccination
Insights • Public / Not-for-Profit

The Public Sector Steps Up

Government and the Public Sector are self evidently at the centre of the COVID-19 response. 
John Keyes • 24/03/2020
laptop screen displaying online restaurant delivery message
Insights • Retail

Retail Strains Shifts and Spikes

Early social-distancing measures for COVID-19 created a dislocation of “normal” consumption patterns, putting retail property at the sharp end of the immediate stresses and strains.
Paul Durkin • 24/03/2020
retail park
Insights • Capital Markets

A Blow to Retail Investor Confidence

Some long awaited confidence had begun to return to the retail capital markets at the beginning of the year with many transactions going under offer and a number exchanging after the prolonged slow down in H2 2019 caused by Brexit uncertainty and the run up to the general election.
Patrick Knapman • 24/03/2020
UK motorway from above
Insights • Logistics

Challenges and Opportunities in Logistics

Long term strategic logistics and industrial property requirements in the pharmaceutical, nutrition, sports and leisure and the public sector are still progressing regardless of the challenges posed by COVID-19.
Rob Hall • 24/03/2020
bank of new white office desks
Insights • Occupier

Office Occupier Decision Making

Only two weeks ago, I met with the CEO of a large London occupier who was looking for new office space in London. He was disappointed by the limited choice of options, surprised by the long lead-in to secure a pre-let and outraged by the increasing rents. 
Ben Cullen • 24/03/2020
London at night from the sky
Insights • Office

Assimilation and Acclimatisation in London Offices

Given the inchoate nature of the COVID-19 situation, last week was a period of assimilation for London offices, with a simple acclimatisation for many to a new way of working for the medium term. 
Richard Howard • 24/03/2020
Canary Wharf skyscrapers
Insights • Investment

Temporary Dislocation for London Investment

COVID-19’s impact on global capital markets this week has been unprecedented. The combined dislocation in equity markets, oil, treasuries and gold/silver moving down in price together, signalled a strong desire for liquidity and freezing credit markets. 
20/03/2020
young white man working in cafe with laptop and headphones
Insights • Workplace

Future of Work and Place

COVID-19 will cure our inertia: we have had the technology to work from home for years. Management attitudes have held us back. Trust remains an issue. Modern leaders manage through outputs not presenteeism.
Nicola Gillen • 24/03/2020
coronavirus (image)
Research • Economy

COVID-19

The COVID-19 situation is evolving quickly. Over the last several weeks, governments, communities, employers, and citizens all over the world have taken extraordinary actions to contain the novel coronavirus. 
16/03/2020
Episode 1  (image)
Podcast • Workplace

What we know, what is critical and what’s next?

In this first podcast we provide a fundamental grounding of remote working through a three-stage approach, backed up by quantitative data analysis.
Despina Katsikakis • 24/03/2020

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