My World: June 2021…
This is part of a series of articles where our contributors describe how they think things will look a year from now.
The first few weeks of lockdown were surprisingly productive for First Property Group. Despite all the obvious challenges, and after a final flurry of Zoom and WhatsApp calls, we closed the sale of a Tower block in Warsaw and netted a €20 million cash windfall with the entire team working from home – not bad! Twelve months earlier, I would have struggled to imagine such a scenario, and making predictions at this turbulent period is difficult, to put it mildly. But here goes.
By June 2021, I suspect we will have seen the worst of the inevitable recession resulting from the global economic shutdown, although its aftereffects will continue for a decade or more. First Property should have weathered the storm, in part due to the cash pile we have just accumulated, but also a likely boost to our earnings from ultra-low interest rates.
During the last recession, Poland fared very well; rent payments in our portfolio held up and, with dropping interest rates, the cost of our debt reduced dramatically, driving up our profits. I expect a similar outcome for Poland this time. Its economy is likely to come under a little more strain but it has fiscal headroom and it should recover fast. Borrowing in Euro denominated debt and investing in high yielding Polish commercial property should be a winning strategy – subject to choosing the property well.
Tenant demand for offices will no-doubt be reduced initially, but the requirement for increased social distancing within the office setting may reverse that trend once the economy settles. I am more concerned about the hit to the retail sector, which has suffered a huge economic shock at a time during which it was already under serious pressure from changing shopping habits. The virus will likely accelerate the shift towards e-commerce, further increasing this pressure.
The larger, more efficient, out-of-town retail locations are most likely to survive and exit this setback ahead of high streets and shopping centres. They offer more cost effective choices for consumers and lower rents and overheads should enable them to compete effectively with the Internet. This is precisely the type of retail space we have invested in and will, in all likelihood, continue to invest in
I hope that, by June 2021, we will have reinvested our cash pile, though it is likely to take longer. Naturally weakened markets are advantageous for buyers but there is a fine balance to be found to ensure we do not catch any falling knives.
No outlook would be complete without taking into account Brexit. It is no secret that I campaigned for Leave and served as one
My predictions for June 2021…
UK in recession: No
Sterling vs US$: I cannot see any reason for any major move in currencies – so steady at around $1.25 plus or minus 5 cents.
Sterling vs Euro: I do think the € should collapse but it seems to stand firm irrespective of the lousy eurozone economy. Will strengthen Vs.€ to around €1.25/£1
UK base rate: Lower than 1% – Interest rates will remain extremely low for at least 5 years now
UK RPI: Lower than 2%
Halifax UK house price Index: Lower
US President: Trump
UK/EU Trade Deal: Not a comprehensive deal. They may agree some sort of standstill to allow the UK to exit the single market and customs union by 31/12/20 but a trade deal will not be consummated.
UK/ USA Trade Deal: No
When this is all over I
