In this fourth update since the onset of the Covid-19 crisis, we update and combine some of our initial thoughts about the impact of the lockdowns and expected restrictions going forward.
To quantify the short term impact on prime capital values across our European market coverage, we built upon our previous risk premia work and introduce two new scenarios (May-20 L-Shape and May-20 V-Shape) which reflect more refined analyses and additional data.
Our three key assumptions across our recent and new scenarios are:
– Declines in market rents due to the Covid-19 are expected to impact contracted rents over time;
– Loss of received cash rents are seen to affect 2020 income from Covid-19 related rent concessions to tenants (Retail -18%, Offices -6% and Logistics -4%);
– Increases in initial yields in 2020-21 amid higher risk premia but less severe than during the GFC.
The cumulative 2020-21 value impact for prime property across all sectors in our L-shape scenario is estimated at -9%, consisting of -15% move in 2020 offset by a 7% recovery in 2021.
Our V-shape scenario shows a cumulative value impact of -6% across all asset classes over the two years, consisting of a more dramatic decline of -19% in 2020 offset by a strong 15% recovery in 2021.
Consistent with our previous Covid-19 updates, the all property results are driven largely by the poor results in retail, which is predicted to have a 12-15% downside in capital values for 2020-21.
Prime offices and logistics are expected to have much less downside in the two year period across the L and V-shape scenarios at -4-6% and -2-4%, respectively.
Source : Company