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COVID-19 UK Real Estate Market Commentary

Published May 11, 2020

Markets around the world continue to experience disruption from COVID-19 and the subsequent economic fallout. The resultant human, economic and financial impacts are both significant and ongoing and perhaps not surprisingly, the UK commercial real estate market is not immune from this Fiera Real Estate’s CEO (UK), Alex Price, has laid out the likely short and long term effects of COVID-19 on the UK Real Estate Market.


​​Hello, I am Alex Price CEO of Fiera Real Estate and in this video I am going to discuss the key themes we are seeing in the market today.

The economic effect of COVID-19 has been felt since late February with UK borrowing set to be £273bn in 2020.

IMF predict that most G7 economies will see a deep recession this year and a rebound in 2021, with northern Europe being one of the economies predicted to cope best.

Our recovery relies on public compliance with health measures and the creation of a cure or a vaccine for COVID-19 being widely available in the next year.

The current unprecedented government intervention however is unlikely to stop a very deep global recession, with the speed of recovery in the hands of science.


Concentrating on the UK market, all property valuations fell 2.7% in Q1 with retail assets suffering the worst fall of 6.3%[i].

Transactional volumes have reduced very rapidly after a strong start to the year due to physical restrictions limiting the ability for “price discovery” of an assets real value.

London is expected to hold up better than rest of UK, as oversees capital continues to seek safer haven locations and asset types.

The delivery of new buildings is declining due to the closure of many construction sites and planning authorities have been slowed by remote decision making. We are likely to see 30% fewer residential units started this year than in 2019[ii].

Rental payments have also been severely affected with only 60%+ of UK tenants paying rent in March 2020, versus 90%+ in an average quarter.


Looking at the short term forecast over the next 6 – 18 months, we are likely to see rental default with vacancy rates increasing in the next few quarters as disruptions bites.

Defaults on interest payments are unlikely to be ignored by banks who will seek for secured debt capital to be returned from asset sales as defaulting unsecured corporate loans will be harder to have repaid.

Changed consumer behaviour will mean many occupational sectors  such as leisure, hospitality, retail and transport will collapse. This will outweigh the supply shock, with uncertainty of income receipt increasing the risk premium investors demand for holding assets.

Asset values will decline as sales happen relatively quickly, with average values falling >20% if the UK REIT market is a guide[iii], although high quality assets will hold up better.

More pro-active investors will start to look for blind pool funds and structures unencumbered with legacy issues through which they can enter the market.


Longer term, we can expect to see rapid and huge governmental intervention and liquidity will reduce yields across all income producing assets. As occupational markets stabilise, sector by sector demand for grade A income producing assets will grow, pushing yields lower.

The increased liquidity may create longer term inflation pressure that enhances the attraction of real assets.

The UK population growth will continue ahead of the reduced new supply of assets which will in turn drive pricing in most sectors, especially residential.

As the economy picks up, real rents will grow, especially in the office and warehousing sectors reflecting lack of supply.

The changes driven by Brexit – new corporate real estate footprints and new supply changes will remain even if the UK extends its transition beyond 2020.

The COVID-19 experience will accelerate the growth of online sales in the UK and the need for productive and serviced offices to attract remote enabled workers.

To summarise, in the short term we should prepare for a short sharp fall in values, but over the longer term the relative performance of real estate in the UK will be excellent for investors with better quality assets, low leverage and experienced management.

[i] MSCI Monthly index April 2020

[ii] Source JLL April 2020

[iii] FTSE 350 REIT performance 24th February 2020 to date

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