It is important to keep positive during the current crisis and focus on the good fundamentals that will underpin the recovery, delegates heard at Real Asset Media’s ‘COVID-19: Implications, Scenarios & Outlook for Real Estate’ briefing this week, the first event to be held online with a panel of speakers and a live audience.
‘If we could get to a gradual normalisation from June, that would allow us to get to a rebound in 2021, which would be a great result,’ said Herman Kok, Head of Research, Meyer Bergman. ‘We can then learn from how we dealt with this crisis’.
There is no doubt that Q2 will be tough, and that at present it is hard to judge what the speed of the recovery is likely to be.
‘We are likely to have the biggest fall in GDP since the Second World War, but things will get back to normal,’ said Andrew Burrell, Chief Property Economist, Capital Economics.
The return to normality is likely to be a slow and gradual process rather than a sudden event. But even in the depth of the crisis it is worth not losing sight of the positives.
One is that the current crisis cannot be compared to the GFC because the fundamentals are very different, said Hans Vrensen, European Head of Research & Strategy, AEW Europe: ‘We don’t have a large amount of space coming through at the wrong time, unlike previously, and this is a saving grace. Also in 2008 there was a lot of leverage in our industry, but we have learnt our lessons and the sector is now in a better position to withstand a valuation shock’.
Some deals are still highly leveraged, but in general the European market is in a strong position and will be resilient.
‘It is too early to be optimistic but we see positive thinking from our clients, who see the long-term value,’ Vrensen said. ‘We have a large amount of capital still committed to real estate. Having that commitment from our clients means we can find good opportunities with the re-pricing of assets’.
There are concerns about the denominator effect, as stock market falls have artificially pushed up allocations to real estate, with some indications of an eagerness to sell. In Europe, however, unlike the US, target allocations to real estate have not been met by most institutional investors.
‘Material uncertainty clauses have forced redemptions, rather than clients wanting to get out,’ said Kim Politzer, Director, Head of Research, European Real Estate, Fidelity International. ‘The current situation is temporary, and real estate remains a liquid asset class’.