The Market – post Covid19

One of the questions I get asked by clients a lot is what the market will look like post-Covid19.

It is almost impossible to guess what the property market will look like at the end of the Covid19 crisis. We have seen ups and downs before, last in September 2008 in the financial crisis. It took almost 5 years for the market to recover.

This crisis is different. Property was a part of the issue in 2008, an overheated housing market was at the root, coupled with sub-prime lending. But in 2020 it is all sectors affected without warning (ignoring the political charge that we should have known about it).

Public and Private sectors are all severely impacted and few will escape unscathed. Significant losses will prevail as shops, factories and offices are all but closed. Government bail-out monies will need to be repaid somehow and the scale of the monies needed to be recovered will be colossal.

By any measure this crisis will impact on society for many years.

The property market where I earn a living is a fickle character. At the moment there are no transactions to speak of. Mortgages and loans are on hold, surveys are not being done. The property market is in a state of limbo.

But there are a number of signs which are emerging.

Firstly, there are people who will see this as an opportunity to acquire at relatively low levels. There will be distressed sales and some will take a long term view and invest in bricks and mortar at this time.

Secondly, there are housebuilders who will be uncertain about their end-users. In one case a National housebuilder who has told us that if they are not ‘exchanged’ on deals in lawyers they will seek a 20% reduction on price on a “take it or leave it” basis. Of course, some sellers may need cash and so may accept reductions – making a new market value ‘tone’. That impacts further down the line in valuations for secured lending – where evidence of actual deals makes no real differentiation between distressed sales of simple market sales. Willing buyer and willing seller fix the price.

Thirdly, this shut down has made a number of businesses realise that they can operate ‘from home’ and a number are starting to question the need for the old-style office (even if it had started to look different – open plan, co-working etc). 45,000 NatWest staff are working from home at the present time, this may become the new norm.

Two of my clients have put on hold re-location plans in order to consider if they should replace their current offices with a like-for-like solution. They have both accepted the need for an office as a ‘base’ and meeting / social space, but in each case, they believe that the space requirement will shrink considerably as they become more used to remote working. We have all learned to use Zoom / MS Teams as the new way of meeting colleagues.

Businesses have generally been moving towards paperless for some time. This crisis has pushed that agenda to the top, reducing the need for cabinets and storage. Cloud computing is relatively cost-effective, incredibly efficient and simple to use.

So, we may see some offices come to the market as businesses shrink their floorspace requirement. Most core cities in the UK have had a scarcity of stock for some time – which has pushed rents up over the last two or three years. An increase in supply coupled with a lack of demand will result in lower rents.

There is also the impact of Generations X, Y and Z impact on the workplace. The baby-boomers are about to leave the workplace and those following have very different views about working and working practices. This is especially so for Generation Z who are now starting leave University and start to influence the way we work. This significant change should not be underestimated. They have a life-view which is focussed on experiences and work-life balance

A lot of corporate clients have put acquisitions on hold pending a review of what actually happens to values. The almost unanimous consensus is that they will reduce – at least in the short term. Of course, this is all anecdotal as the market doesn’t respond quickly to such major events, it will be some time before we see the impact. In effect the market has stopped – suddenly but firmly.

In summary, it is not clear what will happen in the forthcoming weeks or months but:

  • The market will change – it is unlikely to be at current levels. I expect a dip in the short / medium term in most sectors.
  • There will be an increasing consideration about how offices, particularly, will operate in the future – with a potential reduction in the numbers working at a ‘place’ 5 days a week on a 9-5 basis. Home-working and paperless offices will become more prevalent.
  • The recovery period is likely to be years – potentially 2/3 – on the basis that the market was not particularly ‘over-heated’ in the run up to the crisis.
  • Taxation will need to increase and Governments favour using property (Rating, Stamp Duty etc.) as less politically damaging than income tax. Increases in tax may have a negative effect on values.
  • The impact of Generations X, Y and Z are likely to impact on the way ‘work’ is organised and delivered in the future – pointing away from our traditional ways.

Covid19 will have a massive impact on the market, I’m not sure in the short term it is going to be a pretty picture.

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