Keep Calm – time to consider Plan B, says Knight Frank
Property investors, pick up the Keep Calm and Carry On mug when making your coffee today – so says Knight Frank, which claims in its latest Market Outlook that while the financial markets have swung from bull to bear in the past few months, there is “no guarantee they will not do the opposite in an equally short space of time in the coming months”.
Earlier this year, the property markets were contemplating a recovery in the global economy, and a boost to leasing demand from expanding companies. Such a recovery now appears stalled and “central banks and governments appear wrong-footed by events”. In view of this, Knight Frank has considered what the Plan B for property might look like.
Investors are seeking places to put their money, and property available on a long let will thus be in favour thanks to the prospect of steady rental income. However, buyers are understandably keen to acquire prime stock – and most prime assets are either not for sale or have traded recently. “So ‘Plan B’ for the better-quality end of the market involves the seller recognising that the buyer has problems too,” Knight Frank says. While buyers do not want to move up the risk curve, there is not much prime for sale.
Looking at the better-quality secondary stock available, in good locations, Knight Frank says that sellers should ask themselves: ‘the buyer is choosing between my asset or bank interest, so which looks better?’ The firm says “how happy you are with the answer is how hard you should negotiate”.
For lower-quality or poorly-located secondary stock, and tertiary property, previous hopes of a recovery in demand for development sites have been dashed. Knight Frank is encouraged by the government’s pronouncements on planning reform, saying that there is a lot of dead wood to be cut from commercial property stock, making conversion to residential a key component of ‘Plan B’.
