UK - Commercial Property News March 2020 Compiled by Hayven Property Tax

Commercial property is always a very newsworthy topic. Here is a roundup of the latest news (March 2020) concerning commercial property and investments in the UK, including how COVID-19 Coronavirus will impact property and rents.

Capital Economics predicts 10% drop in UK commercial property values

It is inevitable that the economic fallout from the COVID-19 pandemic will lead to a “big hit to commercial property values” in the UK, according to Capital Economics, reported by IPE Real Assets.

The economic research consultancy has downgraded its forecasts for the UK economy and, as a result, is projecting a 9.4% decline in capital values.

According to its report, “the shock should be short and sharp”, but it has not ruled the advent of a “full-blown crash”.

With greater travel, work and venue restrictions in place and the ramping up of social-distancing advice, UK GDP is forecast to fall as much as 15% quarter on quarter between April and June.

“This is a temporary, if very severe disruption, however, and the economy is expected to recover much of this ground by the end of 2021,” Capital Economics said.

“Property is better in theory placed to weather the disruption than other financial assets, as rents are generally contracted for several years, so much income is secure.

“But the deeper and more prolonged the crisis, the more downward influence new leases, breaks or re-negotiations will exert. And of course, there is a growing risk of existing tenants defaulting. So it is unlikely that rents will be unscathed.”

Capital Economics’ central case now predicts a 50bps rise in real estate yields and a 10% one-off fall in rents during Q2, “given the severity of the slump, though we assume a reversal as the crisis dissipates”.

As a result, total returns in 2020 are expected to end in negative territory (minus 4.8% is the central case), although a rebound in 2021 is expected to deliver a total return of 9.8%

However, Capital Economics admitted that “current uncertainty is huge” and so “a more extreme downside with a weaker recovery cannot be ruled out”.

The report said: “This would push us closer to previous crashes, with values down by more than 25% this year as a result.

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“But the GFC market contraction lasted more than two years and this shock should be briefer. And with no debt-fuelled investment boom and supply tight in many markets, some risk factors are absent.

“In addition, further mitigation may come from more aggressive policy measures if the crisis is prolonged.”

Some UK property funds ban withdrawals over coronavirus

Investors in UK property funds are facing bans on withdrawing their money after managers said the coronavirus crisis had made it impossible to value the buildings that they own, reports The Guardian.

Funds worth more than £7bn have been closed this week, and investors have been warned that more are likely to follow.

Managers have said they want to protect customers by ensuring that they do not make payments at a time when they are unsure of the value of their underlying assets.

Read our full UK News Article here: www.hayvenpropertytax.co.uk/commercial-property-news-march-2020/