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.
3 minutes to read
Takeaways
- 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
The critical barrier to a full economic recovery is the ongoing threat of a surge in new cases. The ability of governments to control recent localised outbreaks, provides some optimism and demonstrates that future disruption could be limited.
In a recent UBS study, 80% of investors are concerned about another market decline before the pandemic is over but 79% see volatility as an opportunity. Volatility in markets and low bond rates support real estate and increased distress could boost transactional activity. With the strong demand for core assets in the most liquid markets, there may be more repricing in secondary and tertiary assets, especially in second and third tier cities.
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. There will be an element of hesitation and risk until more is known about Covid-19 and there are widely available treatments and/or vaccines. With continued uncertainty investors will look to markets they know and where the long-term opportunities and fundamentals remain.
As countries and citizens prepare and adjust for a prospect of short-term regional lockdowns there is higher demand for larger and more rural properties as individuals reassess how they live. In our recent Global Buyer Survey 37% are more likely to buy a rural property than prior to the pandemic. Two thirds say large gardens and outdoor space are now more important.
The first wave by definition has not ended. It seems that, even as localised outbreaks occur, effective regional lockdowns and mass testing stems further outbreaks and widespread disruption. This is a pattern that will likely continue over the coming months, but as we become more prepared and accustomed to this, confidence will return. We should not overreact to short-term trends.
Rory Penn, joint Head of Knight Frank’s Private Office notes that “whilst it is perhaps too early to quantify the true impact of the pandemic, recent market trends indicate that there are causes for optimism in and amid uncertainty. This is particularly evident in global cities such as London where wealthy investors continue to recognize the value that prime assets can add to their investment portfolios.
The pandemic has provoked a re-valuation of the types of properties, city or not, that wealthier investors are seeking out, with lifestyle now emerging as a key driver. On one hand many are looking to properties which offer the luxury of outdoor space and greater privacy – providing a noticeable boost to rural and sub-urban locations.
On the other, demand will be particularly evident in urban centres, for simple and short commutes, and we expect a renewed appetite for fully-serviced luxury new builds, to cater for the increasingly wide spectrum of needs as many spend more time at home.
While there will be challenges in the near-term, when I look across locations, the London market with its pricing, interest rates and the recent stamp duty cut – I have to say I see the best buying opportunity for nearly a decade.”
[1] UBS Investor Watch, What’s on investors’ minds / July 2020, Setting a new course Rethinking health and wealth in a post-COVID world