From time to time, I like to go back and read my older blogs to see whether prognostications have come to bare and if my quips still resonate. Given how 2020 evolved, it won’t come as a surprise that my predictive power was patchy, and many witticisms weren’t that witty in the first place.
So where was I off the mark? In our team’s routine assessment of macro scenarios, we’ve pondered the likelihood of deadly viruses, a coordinated cyber-attack threatening the integrity of the financial system or even an asteroid hitting earth. Whilst an intellectually interesting exercise, these never make it beyond the whiteboard. At the onset of last year, few market participants would have credibly predicted a devastating pandemic ushering in the sharpest recession in living memory. Fewer still would have expected that, as a result, some segments of the property market would have benefited handsomely. Although we did not foresee the catalyst, some of the predictions we made a year ago have proven prescient in arriving at this outcome.
We recognised a fast-evolving office sector that was energised by protagonist flex operators and changing workplace expectations, ultimately giving way to the demise of commodity space. We were alive to the powerful repercussions of ecommerce. We endorsed residential and alternative property sectors going mainstream for their diversification benefits and downside protection. And quite crucially, we made ESG top of the agenda. The pandemic has been the great accelerator of these pre-existing structural trends, warping the investible universe and creating pricing asymmetries along the way.
As we think about strategic allocations and asset management initiatives for 2021, we keep these forces centre of mind. In a pandemic-marred competitive investment landscape, the differentiating factor in generating alpha will be how you operate your space. For us this means integrating our existing expertise to realise the potential of the smart amenitised office, unlocking latent value of mixed-use assets, partnering with developers to create space that will be most in demand and being proactive toward special situations arising from the crisis. If we are right in our continued reading of fast-evolving market trends, then these recommendations should stand the test of time.
And this leaves me to conclude with UK politics. For the past five years, Brexit forecasting was rarely gratifying due to negotiating noise and delayed deadlines. But the end of last year brought some closure, validating the view we cautiously held for years that a constructive relationship between the UK and EU would endure. Whilst we do not view the outcome as a fillip for growth, especially given the stringency of current lockdown measures in the UK, encouragingly it does represent an elimination of downside risk. And this will enable a diverse investor base to emerge and price assets with greater confidence.