While Covid-19 may have seemingly re-written the rulebook in certain areas of real estate, what hasn't been that different in the past few years is how the investment markets have reacted.

Although the causes of the recession this time around have been unusual to say the least, with the origins having little to do with economic cycles or flaws in financial systems, the resulting behaviour from real estate investors has been almost comfortingly familiar: as after previous downturns there's largely been a mass move towards 'risk-off' purchases. It's thought that 71 per cent of the real estate investment deals that have happened globally in the first three months of 2021 have ticked the core income-producing box, with most crowding towards tier one cities - again typical recessionary behaviour.

But as we approach (all being well) something resembling normal again, are we going to go back to similar 'business as usual' post-recessionary investor behaviour?

Across the globe, governments' responses to the Covid-19 crisis have also been unprecedented in terms of the scale of the fiscal and monetary support they've committed. This is likely to feed into the nature of the recovery this time around. In addition, not all sectors will recover in the same manner. It's already apparent that CBD offices are not regarded as quite as core by some investors as they have been in previous downturns.

While the pace of the return to work and cities has been faster after this lockdown than the last, we won't know the full outlook until Covid-19 is just another manageable seasonal virus and social distancing measures have disappeared.

On the opposite side of the coin to offices, the rush towards industrial assets, boosted by the rise in ecommerce activity in the last year, is unlikely to subside given how used we've become to ordering almost anything to be delivered directly to our doors.

There is also some evidence - although it's yet to fully come through in the figures - that some consumers who have saved more than normal over the past year will embark on 'revenge' spending, thereby continuing to boost some parts of the retail market and giving further support to a strong economic recovery.

With some sectors behaving as usual and others differing, experts speculate that this is putting us on track for a K-shaped recovery: some asset classes, including industrial and multi-family, data centres and life sciences which also boomed in 2020, will see price rises, while others enter a cycle of value and distress.

The other big change is set to be in the development markets: usually the first area to grind to a halt in a recession as development finance runs dry, as we seek to live and work in better spaces as a consequence of the pandemic development is likely to bounce back faster. In London, investment into development sites in Q1 2021 is only 3 per cent down on Q1 2019, with competition for the 'best of the best' developments, featuring strong connectivity, occupier resilience, with the potential for the highest ESG, amenity and wellbeing credentials, fierce.

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Savills Impacts: Market Cycles

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Savills plc published this content on 18 June 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 June 2021 10:38:07 UTC.