Sergiy Lesyk, Director Research and Analytics, FTSE Russell
The COVID crisis has had a significant impact on European listed real estate. Although, the crisis continues, we can already observe that a few things are indeed different compared to the Global Financial Crisis (GFC).
First, the origin of the COVID crisis is not financial by nature but comes from a health threat. Unlike GFC, it necessitated the authorities to restrict the movement of people, effectively shutting down certain industries, and provide targeted financial assistance. A staggering $11 trillion of financial support has been deployed by G20 nations towards the COVID crisis, so far.
Second, the real estate industry has also changed. Since the GFC, listed real estate companies have decreased their leverage and become more resilient to liquidity shocks. Significantly lower interest rates are also supportive of liquidity position of real estate companies.
These distinctions have resulted in the different performance of the listed real estate overall, and of specific sectors. The GFC was triggered by the sub-prime mortgage crisis, which resulted in consumer-related residential, self-storage and wider economy industrial sectors experiencing dramatic drawdowns (Figure 1). By contrast, office, the retail and health care sectors held up relatively better.
However, the picture in this crisis is almost in reverse (Figure 2). The targeted government assistance has kept private households from a consumer credit crunch and helped residential real estate to post a positive return to date this year.
The industrial sector, which was the worst performer during the GFC, also rose during COVID, boosted by consumers, who shifted their shopping preference from physical stores to online. However, this change in consumer trend, which had started pre-COVID (Figure 3), further depressed retail real estate during COVID, the latter never recovering from its pre-GFC highs (Figure 1).
As can be seen from Figure 4, the COVID crisis had different impacts on real estate sectors. For some, such as industrials, retail and residential, the COVID crisis continued and exacerbated the trends, which had existed before the crisis. For others, like office and hotels, COVID was a shock and it remains to be seen how they will emerge out of the crisis.
In partnership with EPRA, FTSE Russell recently published a paper on the European Listed Real Estate, where we compare listed and unlisted real estate and look at the most recent trends and developments.
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