Property Market Update

Post Brexit and with the current COVID crisis we have been observing a number of key trends.

Asset-classes with significant negative impact

• There has been a very obvious and significant impact for sectors such as hospitality and retail

• There are concerns that the current crisis will precipitate step-change differences in terms of medium and longer-term demand.  For example, it is possible that office space demand may fall as companies now become more familiar with remote working.  In that scenario, covenant strength and local market demand will become increasingly important factors

Geographic economic fundamentals will become more important

• The attractiveness of investments in London has fallen due to the combination of lower yields and lower capital appreciation.

• Prior to the crisis, we were seeing very significant business and hence economic growth in regional centres (e.g. Manchester, Birmingham, Bristol etc).  This was creating new real estate investment opportunities

• The government strategy, as indicated in the latest budget, with massive regional infrastructure spend and economic stimulus, will more than likely lead to a much faster recovery in those regional centres

There is still strong interest from international investors.  This is driven by:

• Strategy of strong real estate estates being a good hedge for the current situation (e.g. Moody’s identification of the real estate sector being less impacted by the crisis)

• Attractive exchange rate vis-à-vis dollar denominated currencies

• Historic low interest rates

• UK real estate investments are still seen as safe and transparent