Pundits proclaim: The past three recessions each held the UK in their grip for two years. If history can teach us anything, it should be that, by the end of 2010, the good times should begin to roll again. But what did the pundits think in previous downturns? Nadia Elghamry turns to the thoughts of property players in previous crises to see if any comfort can be drawn
1920s and 1930s: Great Depression
In 1929, panic erupts on the floor of the New York Stock Exchange as Wall Street crashes. Reports emerge of traders hollering and clawing at each others’ collars. As the decade turns, the Great Depression sets in (pictured, right). Britain, reeling from debts built up during the first world war, and with massive unemployment among demobbed troops, takes a battering.
l EG, September 1920: “We are facing what appears to be a slump in the country’s trade, and the narrow vision which sees only its immediate locality is leading people to believe that the British Isles stand alone. The plain fact is that we have suffered a disappointment because we did not realise that the continental nations would be so slow to recover.”
Early 1980s: The strike years
Unemployment shoots through the psychological barrier of 3m as manufacturing goes into freefall and Britain is plunged into recession. The miners’ strikes are just around the corner (pictured, left).
– Broker: “The market is unlikely to pick up until 1983 at the earliest. When demand falls slowly, as it has done, it also picks up slowly.”
In the event, some relief is felt by late 1982.
– Institution: “We are prepared to carry out developments on 10-year money, and we have to be willing to trade the development if there is a cashflow deficit because of the lack of long-term finance in the coming years.”
1991: The US savings and loans crisis
Coalition forces launch Operation Desert Storm (pictured, below). Spiking oil prices plunge an economy already suffering from slowdowns in the finance sector and the real estate market further into recession.
– Retail analyst: “Britain’s high streets are facing a turbulent start to the new decade. The great retail explosion of the 1980s has ended. All the statistical evidence is there: the consumer credit boom is fizzling out under the wet blanket of high interest rates June’s figures for retail sales growth were the lowest for nearly seven years and the roll call of retailers announcing lower profits and closures lengthens each month. Only 20.7m sq ft of the 33m sq ft coming on stream would be taken up in the next two years.”
By the end of the year, the construction of shopping centres grinds to a halt, and landlords are taking painful financial decisions to entice the right tenants.
2001: The internet boom and bust years
Dot.com became dot.gone. Everyone who was anyone had reinvented themselves as internet magnates, and landlords clung to them as if they were triple A covenants. Then 9/11 happens (pictured, top right).
The result? A massive derating of property shares, leading to institutional shareholders throwing in the towel as quoted property companies large and small go private.
– Developer: “Current retail pessimism is overcooked, and downgrading the valuations at the beginning of the year will prove to have been too sharp.”
UK retail footfall drops 7.9% as the US terror attacks scare off shoppers.
– Canary Wharf puts speculative development on hold: “We don’t want to be greedy. We’ve had enough success, and now we want to be cautious.” This holds true until 40 Bank Street, completed in early 2003, is speculatively developed. But again, CW says this will be its last speculative scheme of the cycle.
2008: The credit crunch
As the year turns, the phrase “credit crunch” is quickly entering the corporate lexicon of blame in much the same way as “dot.com boom and bust” and “9/11”.
Many look to 2008 for sources of optimism. After the collapse of Northern Rock and a string of retailers issue profit warnings, they think the worst is behind them. But much worse is in store (pictured, bottom left).
– Partner in an agency: “The true market will not become clear until March [2008], when the financial markets will have settled.”
– Director-general, trade organisation: “It is important not to exaggerate the risks. The most likely outcome for the coming 12 months will be a soft – as opposed to a hard – landing, after two years of above-average growth.”
– Investment director, agency: “Yield changes are partly a proper correction as prices have been driven too high, as opposed to just a fall in the market. 2008 is likely to be sluggish.”
Robert Whitton, ROM Capital
“I’d expect 2009 to be a quiet year. The lack of debt in the market will keep dragging down volumes, and I’d expect to see an asset crisis alongside this, as investors look to shift properties they can no longer afford to develop. But a quiet market doesn’t mean there’s no value. When sentiment overcomes fundamentals, there are always opportunities, and those investors in a position to buy will be in a strong position.”
Liam Bailey, Knight Frank
“Residential prices in prime central London will decline a further 4.5% in 2009. With the exception of the new-build sector, the central London market is set to be the earliest to hit the bottom in 2009. However, we do not expect price growth until 2010. In the sub-prime sector, we do not expect average price falls to reach more than 10%.”
Barry Gilbertson, PwC Advisory
“Previous experience suggests that property in and around the capital falls less in value when the market turns down, and recovers quicker when market activity returns. 2009 will be a difficult year for property investors, developers and advisers, but at least the recovery, when it begins, is more likely to start here than anywhere.”
James Young, Cushman & Wakefield
“The turmoil around financial services companies will continue to affect demand in the City and Docklands markets. The wider service sector will be holding back from taking space during 2009, although there will be developers offering keen deals to persuade occupiers to make a move. We anticipate that, by the end of 2009, vacancy rates will hit 10%. Prime rents in the City will be below £50 per sq ft by year-end.”
Guy Taylor, Cushman & Wakefield
“Prime rents in the West End will be down to £90 per sq ftby the end of 2009. This is a drop of around 40-45% since the peak of 2007, which is similar to the early 1990s. We are in a very different market to the early 90s, however, with a pipeline of only around 1.6m sq ft for 2009, which may mean we come out of this quicker than we did before.”
Bill Mackie, Cripps Harries Hall
“There will be an increase in activity in the strategic land market in 2009. The Greater London Authority is engaged on its required strategic housing land availability assessment, so now is the time to influence its decisions and promote your sites. This land is obtained on relatively low cash outlay, often by way of option with a modest upfront payment.”
