Share:

Temporary Dislocation for London Investment

20/03/2020
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. 

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Against this backdrop those sellers who have the luxury of time have withdrawn their assets from the market.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.

 

Key Highlights from March

Sanctuary Buildings, London
Sanctuary Buildings

Acquired by L&G (£300m / 3.97% / £1,330 psf).
Watermark Place
Watermark Place

Remaining 50% stake acquired by Union Investment (£252m / £4.76% / £933 psf).
130 Wood Street, London
130 Wood Street

Acquired by Japanese investor (£51.25m / 4.25% / £884 psf).
90 Bartholomew Close
90 Bartholomew Close

Aberdeen Standard Investments is no longer progressing with the purchase. The property has been withdrawn from the market (previously under offer at c.£50m / 3.88% / £1,618 psf).
Eversholt Street, London
Eversholt Street

Second round bids postponed and Aviva Investors have subsequently withdrawn from the market (quoting £105m / 5.12% / £947 psf).

In addition to the above, we are aware of continued competitive bidding on a number of assets in the last 24 hours. The bidder universe is definitely not as deep as it was two weeks ago. However, there is clear evidence of demand from investors less dependent on debt and more typically comfortable with opportunistic investment. The more robust investors see the lack of competition as an opportunity. 

London continues to show its resilience as the most liquid market in the world and bidders remain global from the US, Canada, France, Germany, Hong Kong, Singapore and Korea. The market remains active and Cushman & Wakefield has been involved in a competitive bidding situation with 3 other Investors in the last 24 hours.

London’s fundamentals going into this cycle were robust. Office supply remains tight and we are also aware of occupiers competing. Arguably the sterling devaluation against the dollar to the lowest in a generation, the tremendous governmental monetary and fiscal stimulus and the pent-up investor demand will bode well for a time when investor confidence returns.

We should also spare a thought for the retail, hospitality and F&B sectors in London which are being forced in the main to shut. It will take a tremendous combined effort by tenants/operators, the landlords and the lenders to ensure business continuity prevails in the medium term. This will require a sharing of the burdens from COVID-19 fall out. Needless to say and thankfully the early signs of Governmental intervention appear more interventionist. Unlike the GFC when the profits were privatised and the losses were publicised – let’s hope this time around there is an equal sharing of the cost from all sectors of government, business and society able to afford it.

Different opinions are what makes a market and what your writers have learnt, is that volatility over the last 3-4 years with Brexit, currency impacts and political changes is the new norm.

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
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
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.
Stephen Kirby • 07/04/2020
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
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
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
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
EMEA Covid (image)
Insights • Economy

COVID-19 Impacts for EMEA Real Estate

As the global pandemic progresses across borders and within countries our EMEA local market research colleagues will share what they are seeing on the ground.
Andrew Phipps • 25/11/2020

CAN'T FIND WHAT YOU'RE LOOKING FOR?

Get in touch with one of our professionals.