Real Estate in uncertain times
The economic Outlook - Symmetric shock: asymmetric rebound
AT THE END OF 2019, ECONOMISTS AROUND THE WORLD WERE SURE about one thing: 2020 should be a year of continuity, even better than 2019 as the systemic risks faced by the global economy (mainly Brexit and the trade war between the US and China) began to diminish. The emergence of COVID-19 at the beginning of 2020 took the world by surprise with its virulence, delivering a shock just as the global economy had begun to stabilise.
The first impacts of the pandemic were both a disruption to the supply chain (with a possible shortage of goods and the closure of borders) and a decrease in domestic demand following the restrictions imposed by governments. The lockdown measures introduced by European governments added global implications that are still difficult to fully measure. Indeed, as activity and demand effectively stopped overnight, com-panies were pushed towards unknown horizons, forcing governments to take unprece-dented steps to protect jobs and incomes.
European Real Estate: Going viral
INVESTMENT ACTIVITY IN H1 2020 is clearly showing polarity. Most European mar-kets witnessed solid investment activity in Q1 2020 and some countries even pos-ted higher transactional volumes than in Q1 2019. Total volume of investment in Q1 was €69 billion, 46% higher than Q1 2019. The second quarter went in the opposite direction with significant falls across Europe. Lockdown with the restrictions on mo-vement remain a large factor behind the slower activity. Many transactions, particu-larly low-scale deals, that do not involve lengthy negotiation periods, were simply suspended. Many large deals that went through in Q2 were ones already completed in practice, with signing a formality.
Real estate investors, by their very nature, tend to view property as a long term investment so are not likely to take a kneejerk reaction to the current environment. Investors who do not need to transact will wait for better time to do so. It is probable that some element of pausing will roll forward into Q3 before the market picks up again in Q4. Nevertheless, barring a surge in demand, 2020 (-34%) will likely see sha-rply reduced transaction volumes in Europe with true recovery potentially emerging in 2021 (+16%). Particularly hit here are cross-border transactions, with investors inhibi-ted by travel restrictions. Countries such as Czech Republic (-61.0%), Ireland (-62.0%) and U.K. (-33.0%), with significant cross-border investors will be the hardest hit.