On the anniversary of the first UK COVID-19 lockdown, we are reminded of Karl Marx’s quote that “there are decades where nothing happens; and there are weeks where decades happen.”
2020 saw an explosion in governmental deficits, a move to negative interest rates in much of Europe and the mass adoption of new workplace and retailing habits; shifts that are here to stay.
The human and economic scars of COVID-19 have been deep, with a global pandemic amplified in the UK by the coincidence of the departure from the European Union. This has created significant change in the long-term trading and diplomatic arrangements at a time when political focus is, necessarily, diverted to the present – saving lives and jobs. The convergence of these twin challenges may partly explain why the UK GDP fell by nearly 10% in 2020.
However, in 2021 the UK has settled its political relationship with Europe and aggressively rolled out a vaccination programme. Given the discounted values of UK assets against its continental European peers, and the strong forecast GDP recovery and the recent weakness of Sterling against the US Dollar, we believe that we will look back at this time as a generational buying opportunity.
The UK has one of the fastest growing European populations, an open and developed economy, deep adoption of online retailing and the ability post-EU to support a sustained and broad recovery. This means that the creation of new assets to meet new political and working practices and the repurposing of obsolete assets, marooned by a combination of Brexit and COVID-19, will happen relatively quickly. Change will also be driven by the ending of 2020’s universal debt forbearance with the massive increase in provisioning by UK banks in 2020, giving them the ability to enforce sales in non performing loans.
In the coming months and years, we expect to see UK assets appreciate in value, albeit from a low base, with strong demand to create and adapt assets for the future. On top of this, Sterling should continue to appreciate, providing a welcome additional boost to overseas investors. If ever there was a time to look again at investing into UK real estate, this may well be it.