UK Market Primed for International Investment as Currency Depreciates

27 Mar 2020

Covid-19 has brought forth a wave of global trepidation impacting health, job-security and finances.

After being declared a pandemic by the World Health Organisation (WHO), the financial markets took a turn for the worse. Extremely volatile movements occurred within all the major stock markets and heavily impacted the FX rates. Uncertainty reigned supreme while investor confidence plummeted.

Due to the panic, many firms across the world dumped assets in a bid to raise cash. Even as over 50 global economies announced financial measures to stimulate their economies and reduce job losses, it has taken almost 10 days for the US dollar (USD) to stabilize. This, however, is where the astute investor sees an opportunity as the USD has significantly strengthened against other major currencies - in particular, the British pound sterling (GBP).

Despite Rishi Sunak announcing a GBP330 billion stimulus package of government-backed loans and grants, on the 18th of March, the GBP fell to its lowest rate in 35 years of $1.15 to the USD. It also made some drastic movements against the Euro and other major currencies, such as the Japanese Yen and Hong Kong Dollar.

On Wednesday the 25th of March the US also announced a stimulus package of USD2 trillion to jolt the economy reeling from the pandemic. This was the largest emergency aid package in US history.

Investors looked past the 3 million jobless claims and Thursday’s rally brought the Dow up to 17.62%, the best week since the 26th of June in 1931. Nevertheless, the USD weakened slightly to the GBP which is now at $1.22, but international UK property investors can still make a significant gain if quick action is taken.

Right now, the market is primed to take advantage of the currency swings. The below table shows an example of just how much can be saved by making an investment now as opposed to a mere 2 months prior :

6th January 2020 [Launch Date] 26th March 2020
Bishton Fletcher Building Average Unit Price GBP350,583 GBP350,583
Exchange Rate GBP/USD Close* 1.30787 1.22438
USD Price $458,517 $429,247
Saving   $29,270

*Close Rates taken from xe.com

WHAT DOES THAT MEAN FOR THE PROPERTY INDUSTRY?

Currently, much of the Covid-19 primary effects are being felt by individuals around the world. The severity and duration of this pandemic are largely unknown. Many property sectors are already seeing some impact of the virus:

  • Commercial: Major landlords are considering lowering rents or postponing rental payments so that they do not lose out on tenants in the short-medium term. Furthermore, the corporate tenants that rely on this type of space are potentially going to struggle with the effects of the virus as they focus on staff retention.

 

  • Retail: Many global corporations across the US and UK are now restricting operations to ensure the safety of their staff. There are also strict political regulations as to what shops are allowed to operate under lockdown conditions. Again rental payments are at the forefront of tenant/landlords’ minds to try and ensure that retail vacancy rates do not begin to soar because of the virus.

 

  • Industrial: There are some indications that the industrial sector (specifically warehouses) may do well, or at least better than other commercial property sectors due to the increasing need for warehousing space. Companies such as Amazon are aggressively hiring to cope with the increased demand in online shopping.

The residential sector, however, is an interesting facet of the property market. Property is seen as a safe haven for investor capital – a sort of antidote to the fast-paced stock market. As a more illiquid and slower-moving industry, it will be some time before a concrete assessment of Covid-19’s impact on the market is available.

From an investor perspective, however, over the medium-to-long term returns should remain stable. Many residential investment markets are under supplied, with a growing need for housing from all sectors of the population. This translates into strong tenanting opportunities and stable yields for investors, so why wait? Strike while the iron is hot.

GET IN TOUCH WITH ONE OF OUR CONSULTANTS WHO CAN HELP YOU THROUGH THE PROCESS NOW.

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