Since the 2008 financial crisis, the UK property market has overcome many hurdles including three elections – each bringing their own business and investment changes and opportunities, the on-going saga of Brexit and the big one for 2020, Covid-19
The impact of Covid-19 has been far-reaching for the property market. Retail and hospitality have been hard hit, offices around the country closed as staff have been working from home and some businesses have come to an abrupt halt.
Good corporate governance is critical for such times of turbulence; ensuring better long-term strategic planning at the same time as accurate prioritising of more urgent actions and decisions. It can help lessen the blow in the short term whilst building an increasingly robust and resilient model for the future.
Sectors hit hard by Covid-19
Student accommodation
Student accommodation is a huge sector in the UK, with an estimated 2.38m students delaying returning to or beginning university until the 2021/2022 academic year. Cambridge University stated in May that all learning for the coming academic year will be online. This could have far-reaching consequences for landlords and property investors, with possible empty units leading to drops in income and the need to review the usage of properties by this targeted tenant market.
Retail
Despite many retailers having an online presence, the severe drop in physical footfall has proved too much for many businesses. This has especially been true for those that rely on shifting a high quantity of low-cost products with their margin coming from high street customers. Even though the high street has started to open, footfall has not returned to pre-COVID levels.
Following the issues on the high street, several major brands have gone into administration including Laura Ashley, Debenhams and Cath Kidston. Many retail businesses were struggling pre-COVID, and for some, the pandemic has been the final straw.
The predicted ‘death of the high street’ has an obvious impact on the commercial property market, but we don’t know what this means for the long term. In the short term, landlords and investors are writing off rental quarters receiving delayed or deferred payments – all parties involved are feeling the pinch.
Mortgage issues
Following the government announcement that tenants could not be evicted during the UK lockdown, many residential tenants stopped paying rent due to economic uncertainty. However, landlords still have had liabilities to meet.
Although many lenders were willing to review debt obligations, the results varied on an individual basis. For many, especially those larger institutional investors with deep pockets, debt continued to be serviced despite falling income.
Opportunities
Coming out of lockdown
Consumers have been housebound for months. Many will now be looking at staycation trips and may also be looking to shop, following months of home working. Some businesses have had to look at their operating model and adapt to the situation creating new service lines to survive – it will be interesting to see if this diversification continues as businesses open up following the lifting of further restrictions.
There are areas of growth expected in the tech space relating to Real Estate. While not new, Proptech is expected to see revived interest as a result of changes in habits and environments brought about by lockdown. Specifically, there is increasing appetite for tech and tools which make spaces (both residential and commercial) safer and more easily and efficiently managed at a distance. In its simplest form, virtual viewing platforms have become the preferred way to experience a property without having to leave your own home or office. As we invest more in our spaces of choice, integrating heightened sustainable agendas into our surroundings by way of example, Proptech has the possibility to propel real estate investment forward in a different way.
The repurposing of property use was already a trend prior to COVID. However, lockdown has accelerated this thought process for investors as more vacant real estate units become available. Savvy and cash-rich investors are turning to mixed and multi-use property models as a means of spreading their financial risk and catering to changes in life-work lifestyles.
Government intervention
As the UK tentatively transitions out of lockdown, the UK Government has been quick to prop up the property market. Recent changes to the smaller value residential market have been welcomed with open arms. First-time buyers in the UK looking to purchase their first home will save £10,000 in stamp duty on a £500,000 property until 31 March 2021 which will hopefully drive forward transaction levels. This is positive news for residential developers too, who will likely see an increase in demand for existing units, generating liquidity and freeing up reserves for future developments.
In 2019 there was a noticeable fall in transactions in the UK with many cash-rich investors waiting with bated breath for news on the outcome of Brexit. Many feared that with the additional uncertainly of COVID the level of trade would remain stagnant, however, a recent Savills research report has shown that between May and June there was a 42% upward change in UK commercial investment activity.
In June, Boris Johnson vowed to “build, build, build”, promising a £5bn package to build homes and critical infrastructure.
Looking ahead
- The UK property market continues to weather crises well and proves itself a generally sound long-term investment.
- Smart investors appreciate that diversification is one of the best protective measures you can have against unsystematic risks.
- Smart investors are not only looking for diversification across sectors but diversification within sectors.
- Uncertainty reigns. We hope there will not be a return to lockdown and Boris Johnson has stated the UK will return to ‘normal’ by Christmas, but COVID has shown us that we do not know what is around the corner. Businesses and investors will need to adapt to be resilient.
- Corporate governance will remain a cornerstone of the real estate investment market, and investors, now more than ever, will want to seek comfort that their assets and funds are being housed in a reputable jurisdiction with a respected provider.