What happened last week?

2 MIN READApril 08, 2020
In this critical moment, the world’s real estate leaders are united in challenges to deal with Coronavirus’ impacts on capital, deal flow and cash flow. When everyone seeks clarity and consistent information to support decision-making, GRI has reaffirmed its commitment to foster closer ties - now virtual - and the exchange of experiences among industry leaders. See below a roundup of what happened during this week's eMeetings to help you stay connected with your peers through this difficult time.

Members Remain Uncertain Yet Cautiously Optimistic - Coronavirus impacts on house prices and interest rates, while cash preservation remains king

While uncertainties persist on how exactly the recovery from the economical implications of the crisis will play out, members agreed that a dramatic drop pushing the markets into a recession is inevitable. Implications for the residential sector included a potential rent on caps and values, decreases in construction activity and decreasing rental prices due to the lack of automatic asset price inflation.

A shift in the current supply and demand imbalance could be caused, should the death toll continue to rise and should AirBnB owners put their properties back on the market due to lack of tourism. With the rise in unemployment, governments might create new tenure regulations, while investors and developers will need to consider changing social behaviour, land development focusing on local urban neighbourhoods and supply chains, most of all for agriculture and local food suppliers.

Group sentiment saw right cash management as the current cornerstone to get through the crisis with April and May being the defining time period. While companies who have been actively raising money pre-COVID-19 might be in a good position now, it is still too early to look for cheap opportunities to invest. 

Repricing risk-reward and an increase in rates, through current amounts of leverage due to quantitative easing and zero interest rates, might have investors focusing on smarter money from credit opportunity funds and family offices. Opportunities might arise in the next months, as well as show underlying trends, like a return to value-add for retail or a bigger focus on community developments for residential and urban areas.

Regional Variations

CEE Relying Most on Government Rent Suspensions?

Lenders are put into focus due to decreasing financing and liquidity in the markets. Many adopt a highly selective approach and look for covenants to minimize risks. Forward funding seems to have been put to a halt, based on the uncertainties around predicting capital and rental values. Meanwhile the Czech government is contemplating suspending rents for up to 6 months, putting landlords in a tight spot.

Many saw Core developments, residential and pure logistics and light industrial assets as the most resilient during the crisis, with some rethinking supply chains moving away from holding no stock. Retail assets have taken a big hit during the lockdown with tenants renegotiating rents, while new Office tenants holding off on signing leases. Some expect yields and rents to drop and construction prices to increase, however, opportunistic and risk avert investors might be able to profit from the current situation.

UK Real Estate- Repricing everything the way forward?

The group sentiment was overall negatively skewed, with some expecting COVID-19’s impact on demand and output to trigger the worst recession since the Great Depression. However, some were cautiously optimistic as governments’ responses with monetary and fiscal actions were drastically faster than in 2008. On the other hand, liquidity freeze and quantitative easing will make it harder to raise financing,  potentially leading to repricing of risk & debt expectations.

Retail and hospitality are expected to be impacted most, but also have great chances of quick recoveries if shifting demand is taken further into consideration. Office assets were seen with concern, based on potential paradigm shifts to WFH and approval for new projects has already been stagnant since Brexit, which could result in repricing of rents. Main conclusion of the group was the necessity to understand the massive dislocation of market systems right now to prepare for what’s to come after the crisis.

Access our agenda of eMeetings and join us in the next discussions.

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