LAST week we covered the issues with property funds having to close due to withdrawals, and a further question was raised related to whether or not property is a good idea to be invested into.
In each economic cycle, different assets perform in different ways. Warehousing and offices are very different marketplaces in terms of performance in market cycles. Indeed, offices and newly designed offices are also poles apart in terms of performance right now.
The very best property fund managers have research and analyst teams making the very best decisions possible. Often our own confirmation bias can mean we miss out on obvious opportunities and see opportunities that are not.
Why, for example, in March as we head-longed into Covid, would the world’s second largest cinema chain’s share price jump over 350 per cent in the next three months?
Why has it jumped over 150 per cent in the last month?
Similarly, there is a belief that people will not return to offices, and it is a ‘new normal’, a phrase that gives me bone-ache typing.
Some believe that people will just stay at home and so offices and commercial property will fall away and regional, out of town offices will fare better.
The reality, I will bet, will be very different.
Zoom is great for meetings, but primarily because of the other alternative. I.e. there is not one. Most communication is non-verbal and a zoom call does not allow us to see the whole story.
Such meetings will always exist and moreover they are much more intimate allowing a choice of a glass of wine, and extension into a more social chat afterwards.
Furthermore, there is an absolute psychological requirement that we interact with humans.
Feeling a bit off-centre or nearly mad over the last year? That is natural.
The ‘Human Givens’ studies our nine psychological needs. One of those is the need to feel part of a wider community; another is a sense of status in social groupings; meaning and purpose; and to give attention and to receive it. It is a form of essential nutrition.
If one of the nine is not being met, we can suffer significant mental distress potentially causing paralysis. For most of us, many of the nine are not being met and so we struggle.
These will become very important as we return to work. The glass of wine after work on a Friday, the business lunch that means you meet many other business contacts. That is the norm.
Yes, for sure, offices will not be as busy, as firms offer flexibility to work from home, but the company cannot just downsize offices. What happens when everyone turns up?
People love their space. If I asked our team to take down all their fluffy Meerkats and pink fluffy stuff, they’d lock me out of the office.
It is their sense of belonging, status, security.
That will never change. Moreover, in good efficient companies, meetings can be held quickly as you are making a coffee. You can pull people together quickly.
How will it feel to be in a meeting where you are online, can’t see more than a small percentage of the team, and then afterwards, everyone scoots out for a drink or two on the Friday evening to further chat about the decisions from the meeting which you are now not part of. You will miss the craic.
The city is a younger person’s place, and nothing will change that. The UN predicts by 2050, twice as many people will live in urban areas as rural. The UK is expected to become 90 per cent urban by then as infrastructure, transport and accessibility to the highest paid jobs, lures to the city.
Up until ‘Covid times’, packing workers into a room was the key to making money for office space. That has now ended. Safe distancing requires 135sq ft. of office space per person and analysis by Knight Frank show that’s currently 104sq ft. in the Docklands in London.
The commercial real estate and services firm CBRE states that for London to return to its density of 5-6 years ago, it would need more than 20 million sq. foot of extra space.
All is never what it seems, and with some real estate investment trusts trading at 30-50 per cent discount to their current actual values, opportunities are obvious to a good manager.
Peter McGahan is chief executive officer of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like an assessment of your investments call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit www.wwfp.net.
