The G7’s central banks response has been coordinated and equally awe inspiring. The Bank of England (BoE) injected adrenaline directly into the heart of the UK economy with a massive £200bn of bond buying. The Chancellor, Rishi Sunak, committed to a £330bn package of direct fiscal and economic support to the UK economy and business community. The BoE cut interest rates by 0.15% to 0.1% - the lowest in the central banks’ 325 year history. Sterling having been hammered (dropping by 7.5% vs the Euro and 9% vs the Dollar) stabilised at the end of the week, as the financial medicine has begun to work.
Against this backdrop, London real estate and its capital markets have naturally moved into a new cycle. Whilst cycles are of course different, some patterns do emerge. This week has involved similar patterns to previous cycles that your bloggers have experienced in the 80’s, 00’s and the GFC.
It is fair to say investors are “all over the map” with their approach to market conditions. Some investors have run the whole five stages of grief. Some are paralysed. Some “risk off” whilst others are hunkered down and ready to sit it out. In contrast – others are opportunists and want to buy whilst fear stalks the market.
These are not unusual reactions and whilst the epidemical circumstances of this correction may be unique ultimately, it is a cycle and for those more sanguine, they recognise that the dislocation is temporary.
Central London Investment Volumes 2020 VS 2019
In a world where the risk-free rate has gone negative, the spreads offered by commercial real estate are even wider. Real estate as an asset class in times of crisis takes on a greater allure for many. It’s physical attributes as a tangible asset are an attractive store of value vs corporate paper which is highly volatile and already negatively impacted.
The year began with a huge “Boris Bounce” and paradoxically volumes are 65% ahead of the same period last year.
Availability Has Decreased by 37%
Against this backdrop those sellers who have the luxury of time have withdrawn their assets from the market. Availability has dropped by 37% meaning viable opportunities are even less.
Transactions are still proceeding but it very much depends on the individual motivations of vendors and purchasers, which vary from deal to deal. It is very difficult to generalise or decipher a trend this early in the disruption. However, we estimate that broadly a third of transactions remain on track, a third are under review or subject to pricing conversations and a third are faltering. We should have a broader data set to verify this assessment next week.