While we react to a larger than forecast conservative majority government there appears to be a broad consensus that political clarity should be positive for real estate in 2020.
Looking back at 2019, we can reflect on a year dominated by muted transaction volumes in real estate investment as a result of political uncertainty and the fast-changing retail landscape.
Yet it was a year which showed the power of income in delivering defensive returns in a broadly low return environment.
It was also a year that reinforced the case for real estate as part of a diversified investment strategy where the margin of returns over 10-year gilts stands at over 5 per cent.
In planning an investment strategy for 2020, investors will need to consider the prospects for the real estate market and how to access the best risk adjusted returns.
Property investors and advisers will reflect on the merits of choosing the correct fund structure and the truth about liquidity, following a year in which open-ended, physical/direct property funds experienced significant outflows leading to M&G suspending its Property Portfolio Fund in early December.
In the next few paragraphs we will look at the prospects for 2020 and the challenge of liquidity in real estate funds.
November 2018 marked a high-water mark for property valuations which have shown some falls through 2019.
Retail valuations have fallen hard and fast driven by rental reductions, whether following company voluntary arrangements (CVA) or through lease renewals.
However, it has made shops affordable to retailers maintaining occupancy in prime locations.
The over-supply of shops on the high street needs to be addressed and will continue to resolve itself through 2020/21.
Shopping centres and secondary high streets have been hardest hit with vacancies but on prime high streets and value-led out of town retail parks the story has been of rents adjusting downwards while retailers have remained in occupation.
On prime high streets shoppers enjoy a high quality, accessible retail environment with restaurants, coffee shops and other leisure activities that combine to create an experience which is important to retailers.
Physical stores play an important part in driving sales both in store and online.
The ‘halo effect’ of physical stores boosts online sales in the locality.
Browsing in person and then buying online, also known as showrooming, and the convenience of both ‘click & collect’ and returns have demonstrated the importance of a well-located, if smaller, portfolio of stores.
There is also potential for greater resilience in out of town retailing, which benefits from a restricted supply, governed by a strict planning policy, generally free parking and the convenience that is complementary to online sales for 'click & collect' and customer returns.
The importance of careful stock selection and an acknowledgement of the polarisation of retail locations will be important in 2020.
Valuations in industrial and logistics have continued to rise or hold. As retailers have shrunk the size of their shop portfolios so they have increased their logistics network to support online transactions.