Five key influences for global real estate decisions in the near-term – August 2020

Written By:

Flora Harley, Knight Frank

26 Aug 2020

4 minutes to read

Categories: Publication The Wealth Report

Much remains unknown, but by monitoring a range of real-time economic indicators, and harnessing Knight Frank’s global research network, we are able to pick the most important factors likely to influence decision making over the next three to six months.

1. The pandemic and property

The critical barrier to a full economic recovery is the threat of a surge in new cases. However, successful efforts by governments to control recent, localised outbreaks are a source of optimism. In short:

• With localised lockdowns stemming outbreaks and a growing body of knowledge about the virus, future disruption will be limited compared to the widespread disruption seen in the Spring
• Volatility and low bond rates traditionally underpin demand for real estate and increased distress will boost transactional activity
• Safe haven and traditional markets are likely to benefit, and we anticipate buyers will seek out larger homes, particularly those with gardens and home offices

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2. The reboot of the home and workplace

The pandemic has led to the world’s largest workplace experiment as homes have been turned into temporary offices on a global scale. The future of the workplace and even the home is being reconsidered, presenting opportunities for developers and investors. In short:

• The future of work, and hence the workplace, will be multi-locational and more flexible. Businesses will have to re-think existing strategies on where and how they plan to do business
• The workplace is no longer a binary choice between the office or home. More flexible workstyles are met with greater choice, be it working from the home, the office or another location. There will be a transition towards places that best support specific work tasks rather than entire roles
• Our Global Buyer Survey revealed 61% plan to work from home more often, which will drive demand for offices in homes
  More time spent at home could increase demand for urban logistics facilities and data centres to facilitate remote technology networks

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3. Travel restrictions and the distortion of capital flows

Travel restrictions have weakened cross-border transactions, which in turn is weighing on competition from overseas investors. With a lack of competition comes opportunity for both domestic players and more confident international investors that are happy to buy assets without seeing them in person. In short:

• More than half of respondents to our Global Buyer Survey have either travelled abroad already or will do so within the next 3 months, though airlines predict it will take three years for air traffic to return to 2019 levels
• Both commercial and residential markets that are driven by domestic demand are likely to remain more resilient and potentially see higher than expected transaction levels as investors look inwards
• Markets that allow for overseas visitors have an advantage as prospective investors can visit property 

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4. Investing amid peak uncertainty

Global uncertainty has been building over the past four years but the pandemic highlights that a ‘black swan’ event can happen at any time. The crisis has brought the need for diversification and effective portfolio positioning into sharp focus. In short:

• $338bn of unspent capital is targeting real estate, we expect an increase in competitive bidding for the right assets
• Lingering political uncertainty fuels the need to diversify across geographies, assets and liquidity
• There is a flight to safety. This is evident across both commercial investment and occupier markets, where it is clear that demand for prime assets remains relatively stronger than for those of a poorer quality, as well as in commodities such a gold, which has reached record prices this year

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5. Currencies and shifting buyer power

The US dollar had been riding a wave of uncertainty and at its peak in April was up 8% compared to the start of the year against a basket of currencies, but with the recent weakening form and ongoing economic woes, the advantages and potential buying power looks to be short lived. 

• US dollar denominated and pegged currency buyers have significant advantages due to the dollar’s strength
• The limited window of opportunity for these discounts has been narrowing with the dollar losing steam in recent weeks
• Hedging benefits can have more of an impact than simple appreciation and depreciation

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