Certainty on the Horizon Bringing Some Xmas Real Estate Cheer

Article from CoStar

By Ian Lambert (Investment Partner)

If I wasn’t an optimist, I’d have climbed into my bed on March 23rd and would only this week be peeking out from under the duvet. Although we haven’t got a fully distributable vaccine yet, the fact that we now know we can get one provides what every investment market needs: certainty. In fact, last month’s vaccine news caused such a rally in the stock market that Hargreaves Lansdown, based here in Bristol, had to call in extra staff.

Activity had already recovered sharply in September and October, as confidence slowly returned. Now, throw into the mix a new US President and the removal of Brexit as a reason to defer decision-making, all points to Q1 2021 potentially experiencing more normal levels of investment activity.

Indeed, a recent survey by Duff and Phelps found that 90% of respondents expected asset prices to go back to pre-pandemic levels by 2021.

Uncertainty really is kryptonite to the investment market – leading to paralysis and ‘material uncertainty’, meaning valuers can’t even guess where an asset is valued at. But certainty enables the investor to assess the downside and make decisions with more confidence, and pockets of the market are already looking promising.

Logistics, for example, has continued to boom this year; manufacturers are reporting the strongest optimism since September 2014. Research by Knight Frank shows that e-commerce growth could drive demand for 92 million sq. ft of warehouse space across UK by 2024, and certainly all industrial and logistic investments that I’ve recently seen in Bristol have been sold via best bids.

A vaccine also means we can travel safely again, encouraging people to get on trains and go to work in high-rise offices. Unsurprisingly, offices were the most active asset class in October, accounting for 42% of all deals by capital value.

Even the retail warehouse market has seen yields harden as footfalls return to normal levels through friendly social distancing configuration. Reforms to the planning system assist in the repurposing of retail too; recently a large shopping centre in Clifton, Bristol was acquired by a Housing Association, clearly with an eye on the office and car park space that sits above it.

Firms have adapted better to lockdown number 2 – learning from the first episode and the extension of the Job Retention Scheme helping release pressure on unemployment –  but news of a workable vaccine, despite being months away from distribution, has given the investment market the fillip it needed.

I am well aware that UK PLC is far from healthy and the damage has been, and will be, significant. But certainty breeds confidence; come January 1st (Brexit) and January 20th (Biden), an uptick in investment activity looks on the cards. This means pessimists can climb out of their beds and head for their desks, and I look forward to a celebratory deal lunch (remember them?) at some point in the New Year.

Santa, unfurlough those elves, we are having Christmas.

This article was first published in CoStar on 18th November 2020, see here

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5th November 2020