Issue 10

“You can go on a rollercoaster and scream but you can’t sing in church”

“You can go on holiday to Spain from England but not from Scotland ”

“You must wear a mask on public transport but not in a shop (yet)”

”If you come into the office, we will offer you a free anti-body test”

Confused ?

Well it is all part of the rebuilding. Little steps taken will create paradoxes but this is part of “getting back to normal”.

Except we are moving to a new “normal”.

Wearing a mask is something I only did in South Korea but is now common practice in London as is the wonderful need to keep hands clean. New skills are being learnt – how to avoid “crotch splat” – which is the consequence of an aggressive attitude to a hand sanitiser bottle and failing to consider the “spray zone”.

So with the return to the office (well 4 days a week) I thought Postcard 10 was probably due having given you a short rest.

In the interim, you have had the Colliers Global Investor Surveys - thanks to those who have taken part - and base trends seem to be forming. Once again the last one showed 64% want to buy in London, with 75% of all investors wanting to buy in the next 6 months.

But London is still quiet.

Sure footfall in Oxford Street is up, but still 70% down on year on year numbers, as is Metro travel, whilst getting a decent lunchtime sandwich in the City is more akin to one of Hercules’s labours.

In Postcard 9, I talked of FOGO (Fear of Going Out) being replaced by FOGTW (Fear of Going to Work). Now employers are softly tempting staff back into the office with anti-body testing although in a prudent way with “bubble plans”.

Such a different vernacular I know, but I am hoping that FOMO (Fear of Missing Out) is starting to take effect. Indeed I am seeing it daily in the office as the water cooler starts to empty and social interaction starts to grow.

Yet in the Capital Market, deals are happening. Yes, Q2 figures were probably 15% of historic averages but Sun Venture from Singapore bought 1 New Oxford Street, 25 Hanover Square is set to be sold, 103 Mount Street has been bought whilst Derwent London and Land Securities have announced sales and physical viewings are being conducted.

Viewings ? By whom you ask. Erm mainly Europeans….but

As of writing this note, there is no quarantine between the UK and most of the European Continent. The French and Germans can come and go as they please, whilst we can all freely go on holiday to Italy and Spain but not Portugal, nor Serbia who was in, but is now back on the “naughty step”.  

Those from Hong Kong, South Korea and Taiwan are all welcome with open arms but on return will have to undertake a test and then serve a 14 day quarantine so they need to make the trip worthwhile.

Singapore and Japan still remain in lockdown with stay at home restrictions on both departure and leaving and Australia once open, is now closed. The same is broadly true of North America.

So in short, the once “locked down” investor market is starting to unlock. The nation of savers that is Germany has further swelled their Funds throughout  lockdown and with prime yields surging towards 2.50%, it is no wonder that concerns over Brexit are starting to be dismantled by price metrics.  Oh and gloomy predictions of “Buy now before the second wave hits….”

There is certainly first mover advantage for the European Capital but will they take it ?

Many sellers still expect Asian capital particularly from Hong Kong to pay premium price levels as capital sources are “vast” and want to focus on those buyers, but the irony is that most still expect a covid discount.

This is also true of Middle Eastern Capital, some of whom arrived before lockdown seeking distress, only to find little really here……for now.

But the lack of travel has rekindled old worries amongst some UK sellers.

“If I am to deal with them I need to meet them” or even “they need to get around the building to prove they want to buy” echo prejudices of the 1990’s when International money first hit London. No virtual survey helps alleviate this problem.

And as stock whittles down sellers will focus more on transaction certainty than talk, and the advisory team than the “cash offer”. Hence my belief is that we will see the grey market continue to grow as pre-qualification will be needed for product. Only this week I had 3 vendors intimate a sale price for their asset. It is down to me to find the “right” buyer.

So to end, a bit of research as I am back in the office. A simple chart I know which shows the margins between prime yields and relevant gilts/ bond rates.

Now some of you had heard my theory about London being an anaemic market since the Brexit vote in 2016 and just as we were about to surge, in comes Covid 19. But the story of the Brexit “handbrake” is clearly shown below.

Source: Colliers International

With Euro rates going negative, the premium has grown in those markets where we have not seen further yield appreciation such as Amsterdam. But elsewhere, yield growth have kept the margin static. And with UK Bond rates falling, one suspects that this could be the time when margins will finally come in.

Of course, this is yield margin, not rent and there are many items that make up value but to say London looks to be at its cheapest level since GFC days will surely warrant a spot of quarantine for some – including myself.

In the UK, the other home nations (England, Northern Ireland, Scotland and Wales) have been running their own strategy plans for dealing with Covid 19. There will no doubt be issues with the Scots wanting independence in due course but my 86 year old father phoned me this week from deepest Wales.

Covid19 has meant that Cardiff has been locked down and so Wales would be playing their Autumn rugby matches in London.

“Any chance of a ticket, son ?”

Now and again, a flash of “old” normality does return.

Stay safe.