The New Normal – Property
What a few weeks it’s been, not only in the UK but globally. Lockdown has been tough on most people, even those who have been able to carry on with semblance of work, as routines have gone out of the window. Sadly it looks like our summer holidays may be delayed for a year – hence the photo of past enjoyment.
This week has seen a move towards normality with some lockdown restrictions being lifted and, in particular, the ability to deal with property agency work. This may now free up the market and get transactions moving again.
We have been hearing about the NEW NORMAL which basically means that even when we are fully out of lockdown we cannot function as we did before and there will be a need to maintain social distancing for the foreseeable future.
Here we take a look below at how we think the property market will be affected in the coming months.
Transactions ground to a halt in late March with a ban on viewings and valuation inspections, whilst professionals had to adjust to working from home (new buzzword: WFH). A few sales that were close to the line, and one or two without mortgages, were completed, but volumes were not significant.
It remains to be seen how quickly the market will recover. Once thing to bear in mind is that housebuilding has virtually stopped, partly due to social distancing on sites and partly due to lack of income from new house sales. This means that for six weeks there have been no new houses on the market. Given the appetite for new build this is bound to have an impact on the market (pushing prices up a bit?). The downside is that the lockdown has drained cash from many sectors of society; those in the hospitality business, in particular, have had no meaningful income now for nearly two months, whilst many other workers were furloughed (another new buzzword) on a reduced income.
At this time of the month we normally look to the RICS Market Survey and this month is no exception as we look back to the March report. Whilst it reports that the market was buoyant and moving forward, the pandemic has obviously brought things to a halt. However, sentiment is such that in the medium/long term surveyors anticipate the market getting back on track with the optimism that existed up to March. Our caveat to that is it will presumably depend on how long until normality really commences; the longer lockdown (in some form) continues, the harder it will be to get the market fully restored, especially if this isn’t until the late summer or early autumn.
The unfortunate number of deaths from COVID19 may well lead to more houses coming to the market over coming months, prior to lockdown the market could have coped without prices diminishing, but there may be some dip in prices.
With the exception of retail, the commercial property market was attracting investment in the first party of the first quarter of 2020. Of course, that has all changed.
Retail is still adjusting to the onslaught from the internet and changing consumer habits, a trend which has existed now for the last few years. The lockdown has done nothing to help this situation, with retailers of all sizes now struggling for survival and high streets deserted. The hospitality offering, which has begun replacing traditional retail in many towns (especially our base of Altrincham), has now also taken an economic battering, with only an estimated date of reopening in July (not definite). Whilst March quarter rents were not fully paid, the situation for June is likely to be worse as many businesses will have had no income at all during the quarter, yet many costs are still having to be met.
It is also anticipated that as lockdown is eased, social distancing will have to remain, which means businesses will not be able to operate at capacity – there is media discussion that pubs and bars, for example, may only be able to allow a quarter of their capacity of customers. A massive blow to income. This will inevitably feed back to rents and property values.
As for offices, the market will need to adapt to changes on many fronts. Many firms set staff up to work from home and have found this to be satisfactory, suiting both staff and firms. Staff have enjoyed the flexibility whilst firms are considering the costs of office accommodation, especially in prime locations. It is also likely that, as for hospitality businesses, social distancing rules will apply so many offices will have to reduce the number of staff in each building. This change in demand is bound to impact on rents and long term office demand.
The impact on industrial property is less clear than for other sectors. Although there have been factory shut downs, many firms are now coming out of lockdown, but once again with social distancing measures. These measures will inevitably impact on output. Obviously, firms have lost income as they have had very limited sales for the last few weeks. The more efficient will, of course, make this up but others will face a difficult future.
It is likely that “big shed” space demand will rise as the internet revolution continues unabated. Demand for online shopping has been very strong during lockdown, with most high street “bricks and mortar” retailers having to close.
Agricultural land and farms
In our view the market for land and farms is likely to carry on its own path, with little regard for the remainder of the economy. We must acknowledge that farmers have shared some of the suffering of lockdown, with less demand for products for the catering trade and difficulties with movement of staff (especially soft fruit pickers and seasonal workers). However, demand for land was strong for the usual reasons – tax, long term development, amenity, non-agricultural use (e.g. equestrian) – and we see little reason for this to change. There may be some minor market adjustments whilst those involved find their feet again.
We are delighted that the market is opening up and there seems to be some strong activity, at least anecdotally, over the past couple of days. Before we get too optimistic though, there will be a need for lenders to be fully on board with the New Normal; there may be some adjustment in mortgages products and perhaps lower LTVs (loan to value) than previously until the market equilibrium is found again. There may also be issues with valuers (and other professionals) attending sites s they will have to do a risk assessment – PPE as a minimum, plus assurances that no occupiers have had COVID19 or are at risk.
At Oakwood we never closed our doors but were limited to desktop and drive-by valuations. Some of these may continue into the future, but we can now attend properties for valuation inspections. If you are uncertain about how valuations will work then please give us a call for a no obligation chat on 0161 941 4228.
Welcome to the New Normal!
Graham Bowcock MRICS MRAC
Managing Director, Oakwood Valuation Surveyors Ltd
14th May 2020