EDITOR’S COMMENT A contact told me this week: “I refuse to wish anyone a happy new year after the first week of January. It’s done.” I liked that. No faff. Welcome back, now jump back to it.
Nonetheless, as we’re still in that first week, happy new year and welcome back from a break that, I’m sure you’ll agree, felt like it was over far too quickly. Real estate professionals will be arriving back at their desks, hopefully somewhat refreshed, but grappling with the same issues that defined much of the latter half of last year. New year, same challenges. No time for small talk.
And if you thought last year was tough, you ain’t seen nothing yet. Not my words, but those of IMF managing director Kristalina Georgieva.
OK, they’re not actually Georgieva’s words verbatim either, I’m paraphrasing, but the sentiment is the same. “For most of the world economy, this is going to be a tough year – tougher than the year we leave behind,” she told US network CBS in an interview that was leapt on by almost every other media outlet.
A third of the world and half of the European Union are likely to be in recession in 2023, Georgieva said. A simultaneous slowdown across the US, the EU and China makes that a near-certainty, even if the US avoids technical recession. “And even countries that are not in recession, it would feel like recession for hundreds of millions of people,” she added.
For real estate, there will be some gambles taken as the price-discovery process continues and dealmakers work out where values now lie. With debt harder to come by and more expensive, a drop in deals is unavoidable, and sectors that were once among the most sought after, such as industrial, could see the greatest impact. But if sellers in difficulty need to offload assets, there will always be buyers. The team at Goldman Sachs, for example, has flagged the UK as a “more dynamic” market “where repricing is expected to be fastest due to higher debt costs”.
This is a period that calls for proactivity. Over the past couple of weeks, a number of London-listed REITs and other property investors and developers have locked in debt facility extensions and new pricing as they look to shore up balance sheets in preparation for rocky markets. No better time to make sure you have understanding, co-operative financiers onside.
The news this week that the City of London Corporation’s planning committee is commissioning a fresh review of demand for office space and whether its existing City plan is still suitable after the pandemic is another welcome example of an organisation starting the year asking the right questions. And some of the answers might not be what the real estate industry wants to hear, especially around a falling demand for what now seem to be stranded, grade-B assets. We’ll find out in a couple of months. (Side note: As EG went to press the corporation said it had yet to decide which consultancy was going to undertake the review – it will be interesting to know just how many of the mandate winner’s workforce are now themselves working from home for much of the week.)
Of course, this too shall pass. The team at CBRE recently said that, as difficult as the year ahead is, the clouds will likely have broken by its end. I’m always a fan of a weather-based metaphor and latched onto that bit of optimism. So even if the end of the year feels a long way off this cold January, and even if I’m not sure I see many rays of sunshine yet, let’s all hit the ground running – and we’ll be right there with you.
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