The last two weeks have blown up all of the predictions and assumptions that went into planning companies in the real estate sector made for 2020. There’s no way to know when the coronavirus arrived in Italy, but the announcement of the country’s first known case of COVID-19 on January 28 set off an initial moment of panic. Airplane bookings to Italy fell quickly in the coming days, but when no news of further cases emerged, life seemed to return to normal. Then came February 20, when Italian authorities revealed there were tens of cases, then hundreds. Before long, images of Italians buying out the non-perishable goods in their local grocery stores were making international news, scaring consumers across Europe to do the same. _x000D_
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what followed was a period of denial about the severity of the situation. One of the symptoms of this denial was blaming the media for whipping up panic to useless levels. It’s not an entirely undeserved accusation. Bad news sells newspapers after all and fear is an even better salesman. But all too often, the same people accusing the media of sensationalist reporting were trying to claim the virus was little more than a bad case of flu. Today, we know that only aggressive measures along the lines of the Asian countries who have brought things under control can be effective. As of this writing, European countries were tightening their regulations but it’s still unclear if they’ve done enough soon enough. The European economy and the real estate sector that serves it has weathered so many bumps over the past ten years that it’s still possible to hope that it will make it over the largest hurdle yet. After all, 2019 really did produce outstanding levels of investment transactions and while some occupier markets look to have peaked, they were still robust a month ago._x000D_
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Like most investors and real estate practitioners, we’ve spent the past couple years wondering what it would take to knock the boom on its head. Would it be Russia’s invasion of the Crimea, would it be Brexit or political unrest from immigration? Could anything stop the post-financial crisis Duracell Bunny? _x000D_
As of the middle of March, it was possible for investors to tell us, strictly off-record, “Maybe the market needed this.”They argue that markets need to to get knocked back a peg now and then, or else they spiral into disaster. But that narrative only works if Europe gets the pandemic under control and the United States improves its game, pronto. What seems safe to say is that the days of yield compression look to be over for now. It’s also likely that that a day of reckoning for weaker players on the market is at hand. Whether the reaction will be more severe than this depends quite literally on what happens in the next two weeks.
