Going into the crisis the UK commercial property market was, in general, pretty buoyant – good levels of confidence across the market stimulated an appetite for investment and indeed speculative construction not seen for many a year.
Unfortunately however, unemployment, stock market falls and general economic uncertainty associated with the COVID-19 crisis will, understandably, make potential investors feel less confident about parting with their personal wealth for investment purposes. Notwithstanding the incredible economic measures announced by the Government to support the UK economy, most people are questioning how this support will be funded going forward and how this will impact on future economic recovery.
Many analysts initially suggested that we might expect a V shaped recovery when the lockdown restrictions are lifted – because the initial lockdown resulted in an immediate and steep decline in economic growth but once lifted would likely result in a steep return to economic growth. I suspect that the recovery won’t be quite so steep as there are likely to be short to medium term changes in behaviour as people continue to observe the social distancing measures that most have become accustomed to. On top of that, the period of economic uncertainty and concern over the longer term implications of re-paying the Government’s support and stimulus packages are likely to lead to people being more cautious in their spending and investment habits. This may lead to a slower than expected recovery albeit nothing like that experienced during the 2008 recession.
Interestingly, changes in people’s daily routines over the lockdown period – for example having to rely on online shopping – may result in further damage to the retail high street market as more customers become comfortable with online shopping. That said, the converse may end up being true with more people having missed the opportunity for human interaction that high street shopping provides, which may see consumers favouring the high street over the online experience.
Different parts of the property market will be impacted in different ways – retail and hospitality sectors may initially see a drop in demand for that stock. Office space demand may also suffer as businesses pause to assess the impact on their business, putting expansion plans on hold. On the other hand, manufacturing and logistics may see a boost in the light of demand for online purchases and a potential shift in mindset away from having products manufactured outside of the UK. With a downturn in the economy there will also be opportunities to acquire properties following distressed sales – not pleasant, but certainly inevitable.
As expected, most commercial property transactions are currently ‘paused’ whilst the impact of the crisis is assessed. We do however expect a pretty quick return to the transaction volumes experienced immediately prior to the current pandemic as most clients remain anxious to get back to where we were. The underlying reasons behind the 2008 crash meant that the recovery was always going to be much slower – those reasons don’t apply to the current crisis which tends to suggest that when the lockdown ends people will be keen to resume where they left off. Funding will remain available for the viable investor and new opportunities will present themselves. Bricks and mortar have always been considered a safer asset class in unstable times and they will continue to be so.
Want to read more predictions on the post-lockdown world of commercial property from other industry experts? Read our exclusive Property Matters Report.
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