Another blow to UK property
After nearly three years of uncertainty for the UK markets with Brexit deliberations and the modest increase in confidence once the final direction was set, residential and commercial property markets have now entered new unchartered waters.
Lagging some 1 to 2 weeks behind the EU markets regarding reaction by Governments, we are watching the EU for signs that appear certain to manifest in the UK over the next fortnight. European real estate markets have all but ground to a halt as the threat grows from the pandemic. The shutdown is impacting just about every sector in Europe, from retail to commercial and residential, according to Bloomberg. Property sales are on hold across the continent and landlords are trying to assess which tenants will be able to make rent.
In London markets have stopped almost overnight…
Tenants will cease rental payments en masse and BTL investors will suffer short term liquidity and cashflow issues accordingly. Home owners tending to be month to month will enter into arrangements with institutions and confidence appears to be ebbing fast. Those extended to enter the market face financial hardship of enormous magnitude as cashflow ceases and values crash. Interest rates already at historic low levels will fail to reinject confidence and new investors.
At the Institutional level there is about $12.7 billion frozen in British property funds because managers struggle to valuate assets
Retailers including H&M, Superdry PLC, Burger King, and New Look have either asked for concessions from landlords or said they’d hold rent payments, according to Bloomberg.
Some malls have been forced to shutter as well, putting pressure on landlords like Unibail-Rodamco-Westfield. British retail landlord Intu Properties Plc has been forced to postpone a 1.3 billion pound capital raising. Valuers, unable to access buildings or point to accurate levels will prevent regular reporting leading to the suspension of trading for large REITS and Capital funds that are property based.
In the longer term, however, as the markets have become increasingly interconnected and sophisticated, a rapid and sustained global impact on equities may have an inverse impact on the Property markets where a flight of funds to safety ensues. Large property market have traditionally done relatively well during global economic shocks. Big sharemarket losses and recessions are not necessarily predictors of property declines as investors switch from shares to property.