Editor’s comment: So it seems that so far 2020 – from an
investment point of view – hasn’t been that bad. European transactional
figures, according to CBRE’s number crunchers, are only down by 2%, with €129bn
(£117bn) traded.
Those figures are thanks, however, to a
big Brexit bounce in Q1 in the UK and a number of big deals in Germany and the
Nordics. The second quarter of this year, the Covid quarter, has been gruesome
with transactional numbers down by 39%.
May was, of course, the most severely
impacted with the various government-imposed lockdowns understandably leading
to a significant decline in in transaction activity. June, however, saw a
slight uptick as travel restrictions and lockdown measures began to be relaxed.
This pick-up in activity is expected to
continue and it is certainly being seen in UK markets. In July alone, upwards
of £430m of London office purchases have been reported.
And if there really is an abundance of
capital waiting for restrictions to be further eased, H2 – provided a second,
third or fourth wave of Covid doesn’t hit – could give the real estate
community reasons to feel cheerful.
But that abundance of capital will
likely be more discerning, focusing hard on prime assets in major gateway
cities. That capital will undoubtedly – at least while the world still feels a
little uncertain – focus on secure, long and pandemic-proof income.
Vendors trying to sell assets that don’t
fit those bills, may well struggle (see London dealmakers find rays of
post-lockdown light). Prices paid for those assets after the last
recession and before the referendum vote are unlikely to be matched today. As
is the pattern in the boom-and-bust cycle, there will be a rush to quality and
security of income.
And that security of income is being
sought in new asset classes. There will no doubt be a rush to healthcare, a
sector that has continuously updated the market throughout lockdown with its
100% (or close to) rent collection rates, and industrial will, of course,
remain the darling of the investment world for a little while yet, boasting
almost the same levels of secure income as healthcare.
But my hot tip for the next big flood of
investment is data centres. There have long been specialist investors in this
sector, known for its high rental income. But the world’s increasing demand for
data, our growing push into doing absolutely everything virtually, is only
going to cause us to need more, bigger, better and high tech data centres.
Just this week Australian-based Cromwell
Property Group, best known for office investment, teamed up with Stratus and
EXS Capital Group to launch a $1bn (£780m) fund to invest in data centres
(see Real estate readies for data centre
boom). It already has two sites under exclusivity, one in London and
another in Frankfurt.
Investors looking for a safe place to
put their money could do worse than follow in Cromwell’s footsteps. According
to EG data, the UK sector is booming with more applications for data centres
submitted for planning since lockdown than in the whole of 2019. Some 2.7m sq
ft of data centre space has gone in for planning since 23 March, compared with
2m sq ft last year.
In the UK alone, internet usage has
almost doubled since lockdown, surging to record levels in April with all of us
spending on average just over four hours online every day. And with shopping in
real life still feeling a little odd, with global business travel likely to
stay in the doldrums for some time yet and with only a few of us trickling back
into our offices, that demand for data is only going to continue to boom.