‘Unprecedented’ has been the watchword of the Covid-19 crisis that has engulfed 2020, presenting one of the biggest health and economic challenges the world has ever faced. For investors it has put to the test a quip of Sir John Templeton, who once said that the four most dangerous words in investing are ‘this time it’s different’.
The sentiment behind his statement may be why some have sought to compare Covid-19’s economic impact with the 2008 financial crisis. There are, however, material differences this time around – particularly for the commercial property sector.
For one, the lending environment is a lot more supportive than it was then, with banks better capitalised and regulators asking for leniency in their treatment of borrowers. Indeed, credit is what characterised 2008, whereas for businesses the big issue is more about cashflow.
Another important point of difference is the supply-demand dynamics. In many UK cities, perhaps Edinburgh foremost among them, there has been a real lack of new development in the past decade or so, and what is being built is for the most part pre-let. Any downward pressure on rents brought about by coronavirus should be mitigated, to at least some degree, by the lack of new space.
Perhaps most importantly, the market has not yet been jolted by forced sales that typified 2008. At that time, the mood was set by a fund unilaterally deciding to cut the valuation on its portfolio by 17%, which triggered others to follow suit and drain investor confidence in commercial property funds. This time many funds moved to suspend trading quickly, potentially avoiding mass redemptions and the need to sell assets.