August has traditionally been a month for reflection. As a researcher, the summer lull provides a welcome respite to focus on the more whimsical elements of the property world and the industry in general adopts a more informal approach, catching up with old contacts, thinking strategically and taking stock ahead of the final few months of the year. But with the world in the clenches of a pandemic, which is having a profound impact on the human experience and triggering the deepest recession in our lives, the industry’s mood last month was distinctly more sober.
Back in May, as lockdown restrictions were beginning to be eased around Europe, I pondered whether this year might in fact see the summer lull replaced with a frenzied catch up in activity that was unexpectedly being forgone. In hindsight, those were silly musings. Summer holidays are precious, this year especially so. Also, the practicalities of deal making are still compromised: physical restrictions hinder property viewings and the potential recessionary fallout provides enough uncertainty to limit investment at a time when property prices are at record levels in many markets.
It should come as little surprise then that investment introductions have ground to a halt. Vendors of income-producing property can afford to be patient until they have a more receptive audience. For those holding less salubrious assets, there is a real trepidation of being an early mover and signalling distress. As a result, bid-ask spreads remain wide for non-core assets. Given that the typical time to transact on a property can be upwards of 180 days, this year is shaping up to be the quietest in at least six years at a European level.
There is of course the typical seasonal chatter of a flurry of assets coming to market in September, which offers hope of a pickup in activity. This seems likely to be dominated by Germany and France with their deep and captive domestic investor bases and where the initial economic recovery from Covid is arguably better than other parts of Europe. Indeed, Germany had a strong first semester in terms of transactional activity, with its role as a safe-haven investment market proven unequivocally.
Given questions about the lasting impact of the working-from-home experience, office tenants who can defer decisions surely will. And for hospitality and non-convenience retail, landlords will need to offer generous incentives to attract the few active requirements as well as help existing tenants adapt premises to the new operating environment.
But there are still reasons to be positive. Supply-chain panic will bolster logistics demand at least until the end of the year. And chatter about the death of the office has happened before, yet the reality is likely to be that while some working from home will continue, companies will still need much of the same space they had before. Our research suggests a reduction of circa 10%, which will be balanced out long term by increased space per employee as occupiers provide more flexible collaborative space.
And while we may have temporarily shunned other forms of real estate, we value our homes more than ever. Recessions across Europe are likely to impact sales at the top end of the market and to investment buyers but, with Oxfam expecting that over half a billion people worldwide will be pushed into poverty as a result of the pandemic, new opportunities will emerge – both to help and to generate returns – in affordable housing, intermediate housing and impact investment.
Like much in life currently, August was not as much fun as in previous years. But with a long-term outlook and a willingness to flex approaches to suit changing markets and occupier priorities, better times could be around the corner.