Looking Beyond Short Term Market Dislocation

David Haynes • 21/04/2020

As highlighted below, returns to investors in specialist sectors are closely aligned to the fortunes of the underlying businesses.

The prevalence of shorter leases, turnover arrangements and direct operational investment exposes landlords to the ultimate industry sector in a more direct way than investing in conventional offices or logistics assets.

Each of our focus sectors life sciences, senior living and residential are impacted by similar short-term factors:

  • End-users cannot take occupation; whether students unable to return to universities, or retirement renters being unable to move in, so completions are delayed or rents are refunded
  • Construction slowdowns are causing delays to practical completion and highlighting development risk
  • Investor and lender appetite is reduced across markets

Our expert contributors look through these short term impacts on their markets to re-appraise the long-term fundamentals. The key is assessing when short-term market dislocation offers opportunity as recovery looms.

Two sectors have made very different headlines through the COVID-19 crisis.

Universities have been directly affected. Whilst teaching has continued virtually, rent rebates to students who cannot physically attend campuses and cancellation of events which generate summer income, are hitting private sector operators of accommodation and universities in equal measure. Investment in Purpose Built Student Accommodation (PBSA) markets has slowed but the fundamental strength of the sector will buoy market sentiment as the situation settles.

In contrast, the ability of business and society to get back to some form of normality appears to hang on the endeavours of our Life Sciences industry. The UK has a global advantage in biotech with world renowned clusters within the Golden Triangle (Oxford, Cambridge, London) and beyond. In a new world where immunologists and epidemiologists are household names, and politicians seek resilience in the face of future threats, demand for laboratory space will accelerate.
We have long believed in the growth potential of life sciences real estate and built our own team, to advise clients in the space, way before the COVID-19 pandemic elevated the visibility of the sector to the general public. Equally, we remain confident that demographic and societal trends will support the PBSA and retirement living sectors through any temporary, short-term dislocation in markets.
Residential markets are impacted by government imposed restrictions during lockdown, as our Head of Residential, Charles Whitworth highlights.
Many build to rent investments are continuing to progress but greater caution will limit the supply of new opportunities and stall some transactions. With physical viewings very difficult to carry out and the Government advising deferral of completions, lockdown is having a very immediate impact on new homes sales and standing investment stock.
There are brighter spots, with appetite from Chinese buyers supported by digital marketing tools. We continue to believe alternatives will account for a significant proportion of the investment market in 2020, but no sector can withstand the short term impact of a shock of the scale of COVID-19. So volumes will undoubtedly be lower.
The fundamental appeal of the sectors should mean a reversion to an upwards trend once the shock subsides.


7 April

Will COVID-19 Slow the Rise of Alternatives?

Investors in specialist sectors such as student accommodation, retirement living, data centres, healthcare, co-working, hotels and residential are seeking to understand the impact of COVID-19 on the underlying operational businesses as quickly as possible.

Many investors have been immediately affected given their exposure to the operational cashflow of underlying assets. Operators are looking at short and long term impacts on their businesses and how these might affect their ability to turn to real estate investors to raise capital.

In the first of a two part series, experts in four of our specialist sector teams provide their assessment of the impact of the pandemic on their markets.

In total, Alternatives accounted for 38% of all property investment transactions in 2019. Cushman & Wakefield’s report “Broader Horizons” published last year set out 4 drivers of what seemed like an inexorable rise in Alternatives:

  • Demographic and structural trends such as an ageing population, more international study and the growth in data traffic.
  • Investors seeking yield in a “lower for longer” world.
  • Institutions wanting to access the long leases in areas of the specialist sectors to match long duration liabilities.
  • Conversely, other investors have wanted to get closer to the higher returns offered by rising operational incomes and become more adept at taking operational exposure.

The demographic picture remains positive so whilst the specialist sectors are not protected from the impact of the pandemic and some, such as student accommodation, have been more quickly impacted than some conventional sectors, we expect investors’ appetite to rebound in the medium term, driven by societal trends.

rELATED articles

elderly gentleman's hand place over each other on walking stick
Insights • Residential

Should You Invest in the Retirement Living Sector?

As a needs-based product, senior living real estate has historically proven to be more recession-resilient and stable than traditional real estate sectors.
Lee Layton • 14/12/2020
red steel building
Insights • Commentary

UK Real Estate Perspectives

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.
Digby Flower • 04/11/2020
modern office with lamps and Vitra style chairs
Insights • Workplace

The Challenges of Returning to Work

The return to work is considered across 3-time horizons and across 5 key areas from integrated facilities management, work space, people and future work patterns, to buildings and portfolio.
Nicola Gillen • 21/04/2020
high rise apartment block looking up
Insights • Investment

COVID-19 and Alternatives

Investors in specialist sectors such as student accommodation, life sciences, retirement living, data centres, healthcare, co-working, hotels and residential are seeking to understand the impact of COVID-19 on the underlying operational businesses as quickly as possible.

David Haynes • 21/04/2020
University laboratory US petridish
Insights • Lab

Life Sciences Looking Forward

Life science: from academia, to businesses and clinicians, the sector has never been more at the forefront of society.
empty lecture theatre
Insights • Education

Student Accommodation

The lack of certainty over the 2020/21 academic year and impact on student intake has caused some investors to be more cautious. 
Sarah Jones • 21/04/2020
sand timer with red colour sand
Insights • Residential

Residential - Timing Is Everything

The UK residential market continues to be impacted further with the Government’s advice to close down the new homes and secondhand markets.
Charles Whitworth • 21/04/2020
Insights • Commentary

Rethinking Density

Putting people together creates value. This principle is now being significantly challenged by COVID-19. Do we need to rethink density? If so, do we also need to rethink cities and offices?
Richard Pickering • 21/04/2020
Glass office facade with tree Australia

Commodities Volatility

UPDATED SEPTEMBER 2021: Increasing demand for construction materials, limited product inventory and supply chain disruptions are driving up construction costs and resulting in longer lead times for obtaining materials
David Smith • 16/09/2021
Cushman & Wakefield Named World’s Best Real Estate Advisor and Consultant by Euromoney for Fourth Consecutive Year

Globally, Cushman & Wakefield was also ranked the No. 1 advisor and consultant for Property Valuation and Research, each for the fourth consecutive year; No. 1 in Agency Letting/Sales for the third consecutive year; and No. 1 Investment Managers for the second consecutive year.

Siew Wong • 16/09/2021

Research • Multifamily

US Multifamily Fast Facts

Revenue Management systems are an effective pricing tool in any economic cycle, giving multifamily managers and operators the data necessary to make informed decisions about rental rates.
Christie Bennett • 16/09/2021
blue duotone graphic of people in office
Insights • Economy

EMEA Markets View

Our EMEA local market research colleagues share the latest real estate market views from their countries.
Andrew Phipps • 15/07/2021
high rise apartment block looking up
Insights • Investment

COVID-19 and Alternatives

Investors in specialist sectors such as student accommodation, life sciences, retirement living, data centres, healthcare, co-working, hotels and residential are seeking to understand the impact of COVID-19 on the underlying operational businesses as quickly as possible.

David Haynes • 21/04/2020
arrow engraved in concrete
Insights • Occupier

Occupier Decision Making

As we stop and reflect on what is, for most people, week 2 or 3 of our imposed lock down, a massive call out to all FM teams globally. They have been working flat out to help businesses stay functioning and open where this is necessary, as well as lending additional support to front-line businesses.
Michael Creamer • 08/04/2020
glasses on desk inside skyscraper office looking out at night time city
Insights • Valuation

The Valuer's Perspective

March quarter figures will show a marked downgrading in all sectors bar Central London offices and the best industrial and logistics units.
Charles Smith • 08/04/2020
Knightsbridge, London during COVID-19 lockdown
Insights • Retail

Retail Quarterday Mayhem

As the ‘stay at home’ message crescendos, and lockdown sweeps the world, many sectors are feeling the economic crunch. Without the daily hustle and bustle on our streets, the physical elements of the retail and leisure market are facing a state of economic hibernation.
Paul Durkin • 08/04/2020
black & white young woman eyes raised, smiling
Insights • Commentary

Motivational and Social Shifts

If your past 2 weeks has been anything like mine, then you’re likely to be getting to a place of COVID-19 fatigue.
Richard Pickering • 08/04/2020
ethernet cables in sockets
Insights • Data Center

Data Centres Versus COVID-19

With society under physical lockdown, we have never been more reliant on data centre facilities, as we increase our virtual (on-line) presence.
flexible workspace people working in converted warehouse
Insights • Coworking

Flexible Workspace's Biggest Challenge

Although some flexible workspace operators had not until now weathered a downturn what we learnt from the GFC in 2008 was that demand for flexible workspace in times of uncertainty tends to remain high.
Emma Swinnerton • 07/04/2020
empty hospital operating theatre
Insights • Healthcare

Healthcare Balance of Risk and Opportunity

Never has the healthcare industry been in the spotlight to such an extent and rarely has the interaction between the public and private sectors been so constructive and collaborative.
Martin Robb • 07/04/2020
pillows on hotel double bed
Insights • Hospitality

Hospitality Challenges

Two months ago, the conversations around the UK hospitality sector were focused on exciting new brands, the undisputed positives of long-term global demographic and tourism trends and how best to package product to satisfy the increasing appetite from institutional capital seeking to capitalise on the secure long term income provided by the sector.
Jonathan Hubbard • 07/04/2020
Woman working on laptop in kitchen with glass of milk
Insights • Commentary

Introducing the New Normal

A week is a long time in politics would be a very apt phrase for the current global situation. The change we’ve seen since we shared our last view of the UK real estate market has been dramatic in two ways. 
Andrew Phipps • 07/04/2020
desktop screen at home with iphone with Skype logo
Insights • Commentary

Leadership Resilience

The resilience of our leadership is brought into sharp relief during times of crisis. The nature of the crisis is moot, it’s how people in positions of responsibility respond and the messages they send to their teams, clients, and in the cases of governments around the world, their electorate and the voracious 24-hour news cycle. 
Andrew Phipps • 07/04/2020