27 April, 2020
Commercial Property Post Covid-19
It is now over a month since Boris Johnson addressed the Nation on 23rd March and placed the country and economy into lockdown. Over this period, I have been a keen observer and commentator on the commercial and residential property market. Guidance and communication from the RICS, Lenders, Insurers and National Panel Valuers was swift and generally well received. Of course, we also had a few “end of the world” predictions, from ill-informed pessimists.
Perceived wisdom is that whilst we can learn from the economic crash of 2008, the Covid-19 pandemic is a very different set of circumstances.
We cannot predict the property market movement. None of us have a crystal ball. We understand that the longer it takes to come through this the more potentially draining it will be on resources, but unlike 2008, lenders are keen to get back to business as soon as possible. In the residential market, we are already a seeing a return of 85% loan to value mortgages from several banks. This is supported by the property profession that has quickly sought to innovate and provide solutions to continue providing valuations, supporting the property industry and the economy.
Valuation has always been a combination of judgement and fact. With a lack of transactional comparable evidence RICS regulated valuers are seeking alternative data points that are communicated and agreed with clients.
Whilst the market has fallen into this period of “Slow Motion” we must not forget the trajectory of the property market prior to lockdown and we have to look forward to what is likely to be a very busy time once the market is taken off “PAUSE”.
One commentator described the UK market as “a tightly coiled spring right now waiting for pent up potential to be unleashed”. We seem to have forgotten that the Brexit handbrake had only been released for a few weeks prior to the outbreak of the Covid-19 Pandemic. That handbrake has been reapplied. However, there is still a real hunger for property investment, and I would suggest that Agents, Valuers, Property Managers and Building Surveyors all need to have processes in place to service this work.
Where will the market be in 2 months’ time? Following the last recession, we saw a “flight to quality”. Those very best assets with the strongest and longest income streams being the first to recover. When looking at sector specific, I would expect Covid-19 to “accelerate change”.
With regard to retail I would expect to see a significant re-purposing as we currently have far too much retail space. As the market returns, I can envisage growth in good quality out of town retail and to reflect the increase in online retail, together with a move towards sustainability, potential significant growth in “click and collect” facilities. Has Covid-19 saved Argos?
Prior to lockdown, the office market had sustained low vacancy rates, of less than 5%. There will be a demand for flexibility in office use combined with improved technology. People will be looking for “great spaces” to work, but I would expect office rentals and values to remain relatively static.
Industrial has been the good news/go to sector for over 24 months and I don’t see any indications that Covid-19 will slow that growth and demand. On the contrary we are already seeing increased demand particularly for distribution and logistics industrial space.
2019 saw both a Nationally and Regionally significant increase in Hotel bedroom numbers. This over supply had started to filter through to the leisure market values/hospitality market values prior to Covid-19. Post Covid-19 there is some thought that people may be deterred from foreign air travel and also potentially be attracted to serviced apartment style accommodation. Undoubtedly the Leisure sector will be very difficult
In summary almost all commentators are now predicting a V shaped recovery, with the smart money on being back to par in Q1 2021.
I will be seeking to share “intel” with our clients on a weekly basis and would finish by saying stay safe, look after your loved ones and colleagues and let us Innovate, Collaborate and Communicate.
Chris Armstrong, Director, Valuations. BA Commercial