Summary: Fundamental differences between the UK and EU retail markets, such as higher eCommerce penetration and OCRs (occupancy cost ratio= rent/tenant’s sales) have led to a stark decline in share prices and valuations. The pandemic has clearly exacerbated eCommerce rates and thus reduced the need for physical stores, but the UK already had one of the highest online purchasing rates world-wide, which is why the increase was more pronounced as the structure was more developed. Simultaneously, the UK has a higher retail density than the EU which creates more competition among retailers. Furthermore, the impact of Brexit is hardly negligible: the overall uncertainty most likely deters new and international retailers from expanding or entering the UK market.
The London office market on the other hand is facing the risk of the pandemic, Brexit, and flex-offices. As the chart below shows, Brits were much were in returning to work, and with a second work-from-home order in place since October, these numbers probably will not recover as quickly. The article believes that the long commute times and stricter employer instructions may have had a large effect on these figures.
The desire to continue unhindered trade with the EU after Brexit, has already caused the relocation of many financial service employees, which will further reduce the demand for office space.
Editor’s note: Interestingly, the article does not mention the fact that other European countries such as Germany, did not force the entire retail sector to close down. During the first lockdown in March, the U.K. allowed only “essential shops” to remain open. Germany for example, kept a plethora of shops open such as DIY stores, florists, and mechanics to name a few. Leave a comment about the extent of retailers closing during the lockdown in your country and whether you think this might have mitigated the effects!
Summary: Net-New Dwellings reached a record of 243,770 between 2019 and 2020, this figure constitutes of 220,600 new builds, 26,930 conversions from non-domestic to residential, 4,340 houses-to-flats conversions, and 930 other such as house boats and caravans. Nonetheless, this is only a 1% increase in net new dwelling from the previous time period 2018-2019. This flattening is being attributed to Brexit uncertainty and it is noted that the national home building fund will probably do little to incentivise new dwellings.
Summary: The FCA wants to implement a waiting period for investors between their redemption request and pay-out. Although this would expose investors to more market risk, it would decrease open-ended property funds’ exposure to liquidity risk and lessen suspensions such as those seen in March in response to extreme levels of withdrawals. Furthermore, a waiting period would allow fund managers sufficient time to valuate or sell properties at the most accurate price and liquidity within the fund could be used more efficiently.
Summary: The £250 million proceeds of the green, unsecured bond issuance by Tritax Big Box REIT will be used to finance or refinance green project. These projects will akign with the company’s sustainability goals and will benefit all stakeholders.
Editors note: If you are interested in learning more about how financial instruments and regulation may change in the future to better suit increasing sustainability demands, I highly recommend reading Rebecca Henderson’s “Reimagining Capitalism in a World on Fire”- Chapter 5 Rewiring Finance.
Summary: This article by Mark Shepherd, director of the MSc Real Estate at the University of Manchester, posits that social distancing measures alongside shard shifts in demand have gravely impacted the ability to accurately valuate properties at the moment. The number of “virtual valuation” has increased by 90% this year, and much of the information can be obtained contact-free either way (floorplans, comparable sales, etc.), yet these are obviously not as accurate as in-person valuations. Nonetheless, the author believes that because RICS accredited surveyors can swiftly incorporate sudden shifts in demand, virtual valuations will outlast the pandemic.