No, Brexit is not the only thing happening in 2019, even if that is the impression you get from the almost non-stop blasts of “Breaking News” and discussions of hard, soft or no Brexit. The real estate markets and even more so the values of real estate assets are fundamentally unmoved by all this chatter. Of course, it is clear that the headlines from across the Channel are not only expressing a wide and chaotic range of opinions, but are also becoming more negative from day to day. In one, a billionaire relocates his business to Monaco to save up to £4 billion in tax, and in another, Honda is cutting 3,500 jobs. There are dire warnings of shortages of Dutch tomatoes at Tescos, not to mention the queues of lorries at the new customs barriers.
But on sober reflection, the real estate industry, whether investors or developers, is keeping its cool:
Some are holding back investment until early April (yes, there won’t be a strong Q1 2019 on the European commercial investment markets – volumes will fall), others are speculating on a substantial “post-Brexit discount” for investors and developers once the air has cleared, including an attractive “land value” discount. The market’s focus is on trophy buildings, i.e. buildings that define a value per se, be it through location, architecture, brand or simply through their extremely high prices. Of course, the price is what you pay on any given day, but the value – in the sense of expectation – encompasses far more than just the building’s price. It is precisely for this reason that value creation through real estate branding has such a special role to play in supposedly turbulent times, as brands are considered to be largely stable in value or, at least, less volatile.
As the first signs of spring appear in Cannes, you get an crystal-clear picture of which types of properties are being traded in addition to entire portfolios. You can already guess: it’s all about the spectacular, the headquarters, the high profile, preferably mixed-use properties. However, you need to recognise investor’s “below-the-radar” motivations. In addition to the superficial glitter of trophy buildings, the risk-related philosophy behind such investment decisions is clearly evident. Maximum risk reduction seems to be the current mantra, manifested in “brick & mortar brand values”. If this can be seen as a seismograph, then so much the better. By mid-April at the latest, we will see where valuations of British and London real estate markets are heading: upwards due to the new positive risk assessment or sideways, i.e. stagnating. The reason there is no downward scenario in this list is because it isn’t currently predicted. An immediate dip is likely to trigger a sharp fall in demand. True to the motto: “There is a brief window of opportunity to invest”. As you can see, MIPIM 2019 is taking place in ostensibly turbulent times. But past experience from the time “before Lehman” teaches us one thing: The peak values of extraordinary properties in prime office markets may fluctuate depending on the general economic situation. But any declines in value will be minimal – precisely because of the high value proposition of these properties as brands.
Dr. Thomas Beyerle