Optimism grows, office tenants shed space and the resilience of Hermés handbags

Optimism grows

The UK’s chief medical officer lowered the Covid-19 alert level yesterday, citing a gradual reduction in pressure on the health service. We are seeing similar patterns in the US, and the latest data from the World Health Organization shows global cases have been falling for six consecutive weeks.

The steady release of positive data is impacting sentiment, and the Lloyds Bank Business Barometer shows business confidence increased by nine percentage points in February, hitting the first positive net balance since the start of the pandemic and the highest level recorded since March 2020. That follows data from the CBI showing british business and professional services firms have reported the biggest improvement in their outlook in more than five years

Though much of mainland Europe continues to struggle with the logistical challenges of the vaccine rollout, consumers and businesses are seeing light at the end of the tunnel. A European Commission sentiment index increased to 93.4 in February, the highest level in almost a year.

Releasing space

Standard Chartered is likely to reduce its office space by a third in the next three to four years, the bank’s CFO told Bloomberg TV yesterday. That follows news earlier this week that HSBC will vacate 40% of its global office portfolio over the coming years.

We’re likely to see more of this, and the balance of factors behind each case will be different, whether it’s business restructuring, releasing legacy real estate or a response to new styles of working. Faisal Durrani weighed up the impact of tenants releasing space in the London Report, which at the time of publication earlier this month had run to 3.1m sq ft since March 2020 – slightly below the 3.5m sq ft long term average.

It’s worth noting that just over 50% of that space falls into the Grade B (or lower) category. We expect much of this space to be discounted by occupiers, unless refurbished to a new modern standard. Furthermore, the increasing focus on prime office space that delivers on flexibility, quality, and aids ESG goals means poorer quality stock will face challenges in attracting interest.

Follow this link to see how London submarkets are meeting the challenge, and this piece on an uptick in regearing as occupiers buy time to decide what to do next.

Travel restrictions and overseas buyers

The surge in housing market activity following the 2020 spring lockdown was a novel illustration of the distortive impact caused by a market shut down. Tom Bill ponders whether travel restrictions may have comparable effects in markets with large proportions of overseas buyers.

The number of new prospective buyers registering in the £10m+ price bracket increased by 109% in the year to January compared to the previous 12-month period, the highest rise in more than 10 years. Over the same period, the number of viewings fell by 36%, the steepest decline in a decade.

“For international buyers, there is a huge disparity between the desire to buy and the ability to view,” Tom says in the piece. “Many have positioned themselves to act quickly once rules are relaxed and the anecdotal evidence is growing that the success of the UK’s vaccine roll-out is an important consideration for people looking to work, study and live in the UK across all price brackets.”

The resilience of Hermés handbags

It’s clear investors prefer to see certain assets before they buy.

Hermés handbags have topped the Knight Frank Luxury Investment Index for the second year in a row, as buyers demonstrated a willingness to buy online. Last year’s most expensive Birkin sold for $200,000. Meanwhile, fine wine came in second, climbing by 13% during the year.

According to Andrew Shirley, the market for luxury collectables, which relies on the auction market for much of its profile, has been badly affected by the pandemic, however some sectors are weathering the storm better than higher-value assets like the top end of the art market, where no painting sold for more than $100m (£70.6m) for the first time in a number of years.

Read the original post here.