Covid-19 Research June 2020 - What we know What we expect - Knight Frank
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What What What we
we know we expect question
Covid-19
knightfrank.com/research
Research June 2020
1
COVID-19 REPORT COVID-19 REPORT
CONTENTS
COVID-19
REPORT
04
MACROECONOMIC
CLIMATE
Following months of lockdown in virtually every country in
the world, here in Spain the path to recovery is now coming
08
THE BUSINESS OUTLOOK
into view. Nonetheless, we must proceed with caution and
IN SPAIN
adhere to the proper safety measures if we are to see a swift
return to normality.
10
OFFICE
MARKET
COVID-19
I
n this report, we look at what the public health be found in the wake of adversity. It is interesting
12
In Europe and all over the world, every business
crisis might mean for the economy, in general to reflect on how the pandemic has served to fast-
sector is reeling from the effects of the coronavi-
terms and as of going to press, and more specifi- track patterns of working and shopping that had
rus (COVID-19) pandemic. At the time of writing, we
cally its effects on the main real estate markets in been slow to take off in Spain, despite enthusiastic LOGISTICS
feel that the past is no longer a reliable guide to the
which we operate. We outline some of our current take-up in other major economies. Almost over- MARKET
future. Instead of looking back, this report presents
expectations and our most pressing questions. We night, we learned to work remotely without sac-
our take on the market as it is today. Given the un-
should bear in mind that the COVID-19 situation rificing efficiency, to shop online more frequently
certainty surrounding the ongoing impacts of CO-
14
is fluid, and its effects on the real estate sector are and successfully, to organise ourselves to prevent
VID-19 on the real estate market, and the dearth of
many and varied – even if the impact is lessening crowding in convenience stores and to enjoy a vis-
recent comparables, we aim to sketch an overview
with every passing day. For the purposes of this it to family, friends and colleagues from behind a
of the market situation at this moment in time.
study, we have focused on a real-world scenario computer screen. It seems highly probable that we RETAIL
However, it is important to emphasise that things
based on information and experience accumu- will stick with these models to help us manage our MARKET
could change rapidly as circumstances evolve.
lated over the course of the last few months. This time more effectively and achieve better results.
scenario is substantially different from the one we Strangely enough, we have also had a lesson in the
16
were working with at the end of last year, although true value of two very different but complemen-
Editorial and contents:
it is our belief that, despite recent events, we are tary factors, each vital in daily life: technological
Knight Frank Research
likely to be in an excellent position to build on preparedness and expertise, and face-to-face so-
research@es.knightfrank.com RESIDENTIAL
the strengths and opportunities that can always cial interaction.
MARKET
2 3COVID-19 REPORT COVID-19 REPORT
MACROECONOMIC
CLIMATE
Governments announce fiscal stimulus
We are all acutely aware of the pandemic’s impact on the packages.
global economy, and on each individual country. En March brought the first wave of funding
Experts suggest that there is a chance of a prompt return to commitments aimed at kick-starting strug-
normality, provided that the right measures are put in place gling economies across the globe, although
to keep the wheels of the economy turning. new programmes are still being unveiled. In
the US, for example, the Senate has approved
a stimulus package worth $484,000 million,
What we know with $300,000 million earmarked for the Pay-
check Protection Program, informally known
As we would expect, economic indicators
as the small business fund.
have been painting a fairly dispiriting
In Spain, the government plans to mobilise a
picture.
In Spain, total of €200,000 million to soften the blow of
T
he lockdowns imposed all over the coronavirus on citizens and the domestic econ-
world were always going to have dras-
the government plans omy. The largest chunk will be used to boost
tic repercussions in the short term, and indi- to mobilise liquidity for businesses by providing state-
cators are a reflection of that. China, one of backed loans to the tune of $100,000 million,
a total of €200,000
the first countries to enter a strict lockdown, thus ensuring that self-employed individuals,
is a good illustration: here, official statistics million to soften the SMEs and companies can access the funds
reveal a drop in GDP of around 7% in Q1. In blow of coronavirus they need to keep them afloat and avoid redun-
many other countries, the available data is dancies. This sum is equivalent to around 20%
already obsolete and of little value when it
on citizens and the of the Spanish economy’s total economic out-
comes to forecasting the future. In Spain, Q1 domestic economy put in a normal year. Meanwhile, Germany has
alone saw an unprecedented 5.2% contraction given the green light to the release of €10,000
in GDP. There is currently a great deal of de- million to fund unemployment benefits and
bate over the quality of some of the economic has cut VAT on restaurant and café sales.
data put forward, particularly when extrapo- The UK Treasury intends to more than
lated from surveys or questionnaires. Con- very least, rates being held at historically low quadruple its planned borrowing up to a to-
sequently, analysts are also looking at more levels. Most major economies are running out tal of £180,000 million, after announcing a
long-term indicators, with a view to forming of road as far as conventional measures are £30,000-million support package earlier in the
a clearer impression of what the economic concerned, although China managed to cut year. In short, government stimulus measures
reality in different countries might look like benchmark interest rates for the entire month have yet to hit their peak. Meanwhile, Spain
moving forward. of April. has decoupled the ERTE mechanism from the
Many monetary authorities have now state of emergency, prolonging the scheme un-
Interest rates: lower for longer.
turned to less conventional options, such as til 30 June for the time being. In the UK, pay-
Following a period of volatility, govern- purchasing public or private debt or dipping ments made to furloughed employees — in a
ment bond yields have reached their lowest into countercyclical capital buffers. Under similar position to Spanish workers covered by
ebb in many major economies, even if only normal circumstances, all of these approach- an ERTE — will be gradually phased out, rather
temporarily. Decisions made by central banks es would be regarded as expansionary in the than withdrawn abruptly at the initial cut-off
have led to either interest rate cuts or, at the extreme. date, also 30 June.
4 5COVID-19 REPORT COVID-19 REPORT
What we expect Fierce debate over the shape of the At the time of writing, predictions for most
recovery. economic indicators span a vast range. This var-
Easing the lockdown, little by little.
PHASES
iation reflects a number of parameters that re-
The most recent batch of economic data
In some parts of Asia, things are already get- main essentially unknown: the speed at which
OF LOCKDOWN
will have focused all minds on getting econ-
ting back to normal; employees have returned In Spain, each country emerges from lockdown, the tim-
omies back on track for growth. Opinions are
EASING IN SPAIN
to work (subject to strict safety measures and ing of the introduction of mass testing and the
although the impact currently split, but almost all analysts expect
regular testing) and South Korea has even future impact of a second wave of infections.
the slump in global economic growth in 2020
managed to hold elections. In Europe, too, on GDP in 2020 to exceed the -0.5% recorded during the GFC.
In our opinion, the Spanish economy will ex-
some countries are relaxing restrictions, albeit perience slower growth than the more optimis-
very gradually. As forecasts of weak economic
will be in the region On a more positive note, the consensus is that
tic predictions for a V-shaped recovery would
2021 will bring renewed GDP growth of 4.3%,
growth in Q1 continue to pour in, governments
of -8%, primarily due although unemployment looks set to rise to
suggest, with the recovery drawn out over a long
everywhere are coming under mounting pres- period of time.
5.3%, compared with 3.8% at the start of 2020.
sure to ramp up the pace and get on with reacti- to the predominance of
For most economies, the spectrum of predic- What we question
vating the economy. The message they are keen
the tourism sector, ted outcomes is extremely wide.
to get across is the need to strike a balance be- Just how long will it be before things get
According to the IMF, the Eurozone will see
tween public health and the health of the econ- it is expected to rally a drop in GDP of -7.5% in 2020, followed by
back to normal?
omy. Accordingly, although the list of countries
that have begun to lift some restrictions is by 4.3% in 2021 growth of 4.7% in 2021. For Spain, the predicted The scale of the crisis is so great that there
hit to GDP in 2020 is -8% (mainly because the are inevitably many questions about the road
growing rapidly, we would expect the journey
tourism sector plays such a key role in the Span- back to normality: Will mass air travel be as PHASE 0. Businesses classed as non-es- of their usual capacity. Gyms can open
back to “normality” to be measured in months
ish economy), with a recovery of 4.3% in 2021. prevalent as it was before? Will the increased sential can reopen with certain health for pre-booked sessions of individual ex-
and quarters, not in weeks.
reliance on card payments hasten the decline and safety measures in place. Clients ercise, provided that safety measures are
of cash? Will employees revert back to working must make an appointment to visit prem- observed. Property viewings can recom-
in a physical office? ises of under 400 sqm. Once inside, social mence during this phase.
Will we become increasingly dependent on distancing and other measures must be
online shopping? In the short term, we can look observed, with each employee attending PHASE 2. Shopping centres can open to
to the example of certain parts of Asia, where to one client at a time. Priority times are the public if visitor numbers are kept to
people are already embracing a “new normal”, set aside for older people and those with 30% of capacity for communal areas and
at least to some degree. Offices and leisure fa- disabilities which coincide with their al- 40% for stores, with customers remaining
cilities are beginning to reopen in China and lotted times for daily outings. Restaurants two metres apart or admitted one by one.
South Korea, although as we would expect pre- and cafes can reopen for take-away ser- Special opening hours will be introduced
cautionary measures remain in place. vice but are still barred from serving food for those over the age of 65. Indoor table
The UK may be about to head in the same or drink for consumption on site. Show service can be resumed at one third of ca-
general direction; however, when we drill flats and sales offices are able to open in pacity; all customers must be seated. In
down to the country level there are many nu- new-build property developments. hotels, communal areas can reopen, with
ances — differences in political and health- user numbers kept to under one third of
care systems, for instance — that conspire PHASE 1-INITIAL. Small businesses can capacity. Cinemas and theatres are free to
to make generalisation impossible. In Spain, reopen if safety requirements are met; operate, again at one-third capacity, and
each region is transitioning through the dif- this excludes shopping centres apart cultural outings can resume.
ferent stages of easing the lockdown outlined from stores which can be accessed inde-
by the government. To say the least, the time pendently from the street. Terraces can PHASE 3. Greater flexibility for travel.
scale of the coming recovery will be unlike reopen at 50% capacity; this ratio may Shopping centres can reopen communal
anything we have seen in the past; this is not be increased if local authorities open up areas and leisure facilities to 50% of ca-
a normal crisis, so we cannot expect a normal more street space to cafes and restau- pacity, provided that social distancing is
response. Conventional economic crises and rants. Some hotels can reopen, as long maintained. New guidelines for returning
their repercussions for the real estate markets as communal areas remain sealed off. to the workplace apply. Bars and restau-
tend to stem from a combination of 1) under- Libraries can open and cultural perfor- rants can trade at half capacity. Indoor
capitalisation of the banking sector; 2) exces- mances with audiences of fewer than 30 performances and sporting events can
sive gearing; 3) oversupply; and 4) a loss of people indoors or 200 outdoors can go recommence, subject to restrictions on
confidence. However, this is not a convention- ahead; museums can open at one third audience numbers.
al economic crisis.
6 7COVID-19 REPORT COVID-19 REPORT
THE BUSINESS
CLIMATE IN SPAIN
What we know works in a bid to meet the rising e-commerce
Increased investment during Q1 2020.
that started to swell as the state of emergency
As companies have had to
took hold – especially in the grocery shopping
segment.
adapt to the current situation,
I
n Spain, the COVID-19 pandemic is also
we are likely to see a rise in
having a profound impact on the country's
What we expect hybrid workplace models that
economy and on all areas of business activ-
ity, with both largely grinding to a halt since The importance of location. strike a balance between remote
lockdown measures were introduced by the
Quality properties in prime locations are working, fixed headquarters
government.
Although a large number of deals were put
like gold dust for investors. Some buyers are and flexible offices
willing to cast their eyes further afield so long
on hold due to the crisis in Q1 2020, the year got
as transport links are good, as these areas can
off to a very good start with commercial invest-
be in higher demand, particularly in the office What we question
ment increasing by approximately 15% y-o-y.
market. Location will also be particularly im-
In terms of specific sectors, the retail sec- Investors and opportunities.
portant in the world of retail, since the most
tor saw its investment volume tick up com-
liquid assets will be retail parks and local shop- In times of uncertainty, investment tends to
pared to the same period last year, while vol-
ping centres or centres located in prime areas, either slow or be put on hold until the market
umes remained flat overall in the office and
where repurposing could even be considered regains a sense of normality. Opportunistic and
logistics sectors.
for strategically located assets. Logistics in- distressed investors are unlikely to prove an ex-
Investment in the logistics sector surged in
vestors will also be interested in location, but ception to this rule. However, given the amount
March, largely thanks to a spike in demand
they are also on the lookout for high-quality, of pent-up capital on the market, we are likely
for industrial warehouses as operators looked
modern buildings, with big-name institutio- to see an uptick in investment volume in the
to expand their storage and distribution net-
nal tenants. future. Price adjustments will be driven by re-
duced expectations for rental growth and cost
Post-lockdown trends.
analysis. Investors are now having to revisit the
Commercial
Volumen deinvestment
inversión As companies have had to adapt to the cu- agreements they have in place for their existing
in Spain
comercial en España rrent situation at an unprecedented rate, we assets in a bid to ensure that they are not ad-
Millions of euros
Millones de euros are likely to see a rise in hybrid workplace versely impacted. Tenants, on the other hand,
models that strike a balance between remote are trying to seek landlord concessions in a
2019 2020
working, fixed headquarters and flexible of- bid to meet their costs during this uncertain
1,000
1.000 fices. Digitalisation and innovation will also time – requesting rent reviews, rent holidays
900
800 play a crucial role in the logistics market and or rent-free periods. Given the current climate,
700 the shift towards industry 4.0, as companies opportunities will begin to appear once things
600
increasingly turn to Big Data and the Internet start to get back to normal and will likely pique
500
400 of Things (IoT) as a way of boosting efficiency the interest of investors who have been lying
300
and providing ever-faster solutions. Sustaina- in wait and will be keen to tap into defensive
200
100 bility will continue to play an ever more central real estate opportunities offering a secure in-
0 role in investor and tenant strategies, as they vestment option. These new opportunities will
Enero
January Febrero
February Marzo
March
look to design new energy efficient warehouses pave the way for new projects, as construction
Source: KnightFrank
Source: Knight Frank Research
Research that can be BREEAM/LEED. and financing deals get back underway.
8 9COVID-19 REPORT COVID-19 REPORT
OFFICE
MARKET
What we know all major cities in Europe, but tenants do re-
main active, even if they are somewhat hesi-
Lettings have slowed to a crawl.
tant to commit. Once construction
J ust as expected, the number of office
lettings has trailed off in recent weeks.
The Madrid vacancy rate stands at 9.9%,
which equates to some 1.5 million sqm of
resumes, a number of
Even so, tenants have still been signing new available space. Grade A properties in the CBD attractive developments
leases, either because they were already un- account for barely 3% of this total, or 0.30% of
will bring coveted new
der negotiation or because they found good Madrid's overall office stock. Many construc-
opportunities in an undersupplied mar- tion and refurbishment projects scheduled space onto the market
ket. Looking at the overall figures, take-up for completion may be put back slightly after
reached close to 95,000 sqm in Madrid during works were put on hold for two weeks and due
Q1, with the effects of the COVID-19 health to delays in the delivery of materials, however, to try and achieve more flexible conditions.
crisis starting to kick in right at the end of the extra safety measures have been implemented The sector will continue to perform well in the
quarter. Although this figure is similar to 2016 and activity has now been resumed. medium term, largely due to the lack of quali-
and 2017, take-up is at its lowest level in five ty buildings in well-established areas, which
What we expect
years. It is worth noting that even before the were already in high demand prior to the state
Offices will need to offer new and appealing and creates a sense of belonging among them. In the short term, current rents are unlikely
crisis hit, take-up was already slightly down Mid-term recovery with new ways of of emergency. Some areas within the secon-
spaces where employees can socialise with one to see any major reductions given the scarcity
in January and February, due to the lack of working. dary centre and out-of-town submarkets could What we question
another. Spaces that workers feel privileged to of supply in the market. A more likely outcome
attractive product on the market and the fact The effects of COVID-19 will remain plain see a new spike in demand, as tenants look for
have access to and that help drive collaboration COVID-19 took hold in Spain at a time when is that new leases will be more flexible, offering
that rents were at an all-time high. The arrival to see over the coming months, as some com- spaces large enough to meet social distancing
and creativity as they alternate between working things were positively booming in the office conditions that benefit both parties.
of the pandemic in March caused various let- panies will choose to push back their plans to requirements and competitive prices such as
from home and going to the office. In terms of sector. Although we remain positive that things
tings to be postponed for the next few months. open new offices, relocate or expand their ex- those offered in areas such as Manoteras and Which sectors have the best prospects
office re-occupancy, on the one hand, we expect will pick back up again, we are also not blind to
As expected, the number of lettings plunged isting offices until the uncertainty eases, and Julián Camarillo – areas which also benefit once the worst of the crisis is over?
it to be a very gradual process, allowing each em- the fact that the sector will have to adapt to a
during April and May. This was the case across others will continue to renegotiate their leases from excellent transport links and could well
ployee the extra space they need to ensure social new reality. The most promising sectors are the pharma-
become the new up-and-coming office hubs
distancing in the workplace. Whilst on the other, ceutical, health sciences and technology indus-
of the city. The market is also expected to do How long will tenant-landlord negotia-
offices should be seen more as flagships, spaces tries, that were already leading office demand
Quarterly take-up in Madrid well in the long term as a handful of attractive tions go on?
2013 - Q1 2020. Thousands (sqm) that offer experiences and that attract employees prior to the pandemic.
construction and refurbishment projects will
These companies are likely to need more spa-
bring coveted new space onto the market once
ce in the medium/long term.
700 works are fully back up and running. We may
also see some major corporates starting to con- Will we be more digitally agile? Will this
600
sider subletting their offices, a move that would improve our business?
500
210 80 inject new, fully furnished and completed sup-
While this is a goal that the sector has been
400
187
115 ply onto the market. And while remote working
136 145 aiming towards for quite some time, the current
is now here to stay, it is also safe to say that the
300 104 117 110 130 situation may well have forced its hand and
116 87 term "remote survival” could be used to better
53 74 140 made employers pay it the attention it deserves.
200
55 describe the far from ideal conditions in which
88
79 117 153 99 Technology has suddenly become the only
100
many people have had to work. Going forwards,
158
170 means to business continuity and companies
100 139 103 100 119 95 working from home will not likely be so extreme
0 have been made to realise that not only do they
2013 2014 2015 2016 2017 2018 2019 2020
and anyone working remotely should be better
need to equip their offices with better infras-
equipped to do so. Ultimately, firms will need
tructure, but that they need to make it a priority
Source: Knight Frank Research to strike a balance between smart and on-site
for the future.
working in order to maximise productivity.
10 11COVID-19 REPORT COVID-19 REPORT
LOGISTICS Initiatives taken by major corporations in the Spanish logistics market
MARKET Start of the pandemic in Spain. March 2020
What we know being able to guarantee employee safety and outdated, we expect operators to continue
resolve issues such as stock shortages and moving from older warehouses to new faci-
A sector in high demand.
delays in deliveries caused by surges in de- lities. We also expect operators to look to ne- 1,500
I f there’s one sector that this crisis has
singled out as crucially important and
mand. Major corporations have ramped up
the services offered by their logistics net-
gotiate lease extensions and rents to remain
stable (rental increases initially anticipated
new logistics jobs created
in Spain
the vital link between households and basic works to do their bit in these testing times, for 2020 will be delayed until 2021). Owners
Urban logistics
necessities, it’s the logistics sector. The logis- either by increasing their capacity to better will continue to offer an increasing number
tics market has not let up for one second since meet demand or by helping to produce and/ has played a vital of rental incentives.
lockdown began in Spain. Operators have been or distribute healthcare equipment. role in supplying National reindustrialisation
racing to meet burgeoning demand by letting
more storage and distribution space, pushing
What we expect people with Another knock-on effect of this crisis will 300,000
take-up to nearly 120,000 sqm in Madrid Rising demand due to new consumer essential goods be an increase in both the stock and size of
face masks donated and
during Q1. habits. logistics warehouses to meet rising demand
distributed thanks to logistical
during the pandemic, with tenants also seek-
In-demand sectors and capacity-boost- A business model that was already chan- capacity
ing greater flexibility within logistics parks.
ing measures. ging, combined with the new consumer hab-
its that the COVID-19 situation has given rise What we question
In addition to offsetting reduced activi-
to, will keep demand among online and 3PL
ty in other sectors, companies supplying Will we really understand and appreci-
food and healthcare equipment are taking
operators upbeat as they vie for the best
logistics facilities as consump-
ate the effort that goes into logistics? Are 2 Millions
measures to meet government requirements these new consumer habits here to stay?
tion continues to swell. In face masks provided to
and ensure people have access to adequate Are things likely to improve?
addition, as a great hospitals across Spain via
supplies.
deal of logistics Urban logistics has played a vital role in its own logistics network
In return, companies have also requested
stock has be- supplying the population with essential
support from the government to help
come goods. In fact, at times an excessive demand
them overcome the chal-
for some products caused stock to run out
lenges they are
and forced the logistics sector to come up
faced with,
with rapid solutions.
Priority
such as
The closure of offices and stores also trig- deliveries
gered a surge in logistics activity, with the
of supermarket orders
mass delivery of products and the important
for healthcare workers,
role of last-mile delivery becoming evident
with free home delivery
throughout the crisis.
The questions that remain are whether the-
se new habits are here to stay, whether we will
really understand and appreciate just
how important the logistics process
Production
is and how much effort goes into and distribution
making sure consumer demand of PPE for hospitals via
is met, and how the lessons its global supply chain
learned from this global pan-
demic will be used to improve
these supply chains.
12 13COVID-19 REPORT COVID-19 REPORT
RETAIL
MARKET
What we know ced capacity, as well as complying with all cy plans with tenants right from the outset of
new health and safety measures. the state of emergency. Shopping centres have
Retail has been one of the hardest-hit sectors.
finally been able to reopen their doors now
Essential goods top the list as most-sear-
M
idway through March, all non-essential that phase 2 has come in to play, so long as
ched items.
retailers in Spain were forced to hang they comply with government measures and
up their closed signs and began to demand The most popular online services at present ensure that leisure facilities and communal
solutions from the government to prevent the – including pharmacies, media and above all, areas remain closed until phase 3.
consequences of this temporary shutdown groceries – have really been able to come into
What we expect
from being any worse than they had to be. At their own. Other areas, such as fashion and
that point in time, a huge opportunity opened banking, are actively offering discounts, free Retail and the race to reinvent itself.
up for retailers who already had a strong on- shipping, deferred payments and returns, ex-
More than ever before, now is the time for
line business model, or retailers who had just press financing and other additional services.
retail to reinvent itself. For instance, shopping
begun to dip their toes into the e-commerce Shopping centres have kept their food
centres could begin to place a greater empha-
market. As lockdown begins to ease, smaller retailers and other essential stores open with
sis on essential retail, such as pet stores and
businesses are gradually reopening at redu- safety measures in place, adopting contingen-
pharmacies, to have a better contingency plan
in the face of future pandemics such as this
one. This crisis has hit the accelerate button
Impact of coronavirus on online traffic by industry on the digital transformation that was already
Start of the pandemic in Spain. March 2020
taking hold in the Spanish retail sector, with
omnichannel retailing likely to prove crucial
Media 46% to this transformation. Customers will be able
to simultaneously interact in whichever way
Supermarket 42%
they prefer across various channels – making
Pharmacies and health 25% omnichannel the only channel for any retai-
lers who want to succeed.
Telecommunications 23%
Banking/Insurance -2%
Marketplace/Tech retail -3%
Cosmetics -10%
DIY -11%
“COVID-free”
certified
Sports equipment -13%
shopping centres
Leisure/Events -13%
will ensure
Fashion -14%
customers feel Stores will have to adapt to the new normal again in the short to medium term. We ex- Retail will need to evolve faster than ever
Luxury -19% by developing new ways of ensuring health pect the vacancy rate to increase by 10 to 15% once it returns, adopting contactless payment
safer and more safety, which has led to calls for “Covid-free” across the board. Landlords will need to find devices, virtual changing rooms – physical
Tourism -22%
confident certification for shopping centres. new ways of cutting costs and adapting to the changing rooms will require much more reg-
Jewellery and watches -25% needs of their tenants more than ever before. ular cleaning and disinfection – and the possi-
Rents and vacancy.
ble addition of guided shopping routes.
What we question
Source: ContentSquare We estimate that rents could drop signifi-
cantly, although they are expected to pick up How will stores change?
14 15COVID-19 REPORT COVID-19 REPORT
RESIDENTIAL
W H AT A B O U T
MARKET
A C C O M M O D AT I O N ?
The rental market
will see heightened
interest in alternative
living options
What we know
When it comes to the residential sector,
emotions and human interaction are key.
O nce a certain degree of normality is re-
sumed and the necessary precautions
are in place, we expect to see the sector start
Experts predict that the market will boun-
to come back to life. The residential sector
ce back quickly. After the first few weeks of
has been exploring innovative new digital so-
lockdown, virtual viewings and phone calls
lutions, offering online viewings and digital
had already returned to normal.
signings, among other new initiatives. In the TOURIST APARTMENTS nounced that overseas tourists will be
rental market, greater focus is being placed on What we question As COVID-19 has slammed the brakes allowed to visit Spain again as of 21 June,
measures such as rent freezes and providing on the tourism market, landlords and while other countries such as Italy and
The general consensus is that this crisis
easier access to finance. investors have been forced to re-market Portugal – along with the rest of the Eu-
will have a profound impact on both GDP
their short-term holiday rentals as tra- ropean Union – also plan to reopen their
What we expect and unemployment.
ditional rental housing and long-term borders in June. The return of tourism
New-build developers are yet to lower The general consensus is that this crisis accommodation. will prompt hotels and tourist apart-
prices. will have a profound impact on both GDP and ments to reopen, with the first signs of
unemployment. However, it is also true that HOTELES reactivation appearing as regions enter
Developers are currently focused on using
the market fundamentals during this crisis The impact on hotels will essentially phases 1 and 2. Although we expect to
all the tools at their disposal to serve their
bear no resemblance to those during the GFC. depend on how long this situation lasts see a gradual return in line with each
clients online, in order to boost reservations
Prior to the COVID-19 crisis, the economy and how quickly people regain confi- phase of reopening, the safety of guests
and sales. Once lockdown eases, they will re-
was generally in much healthier shape than dence to return to life as normal outside will be paramount at all times, to ensure
sume physical contact with clients. There has
it was back then, with much more liquidity of their homes, and subsequently then that they feel both confident and com-
been a more marked slowdown in resale acti-
in the market. More importantly, companies look to travel outside their own city and fortable. Hygiene will play a key role in
vity, among other factors, due to being unable
had taken on much less debt than they had country. Tourism is expected to make a hotels. Domestic tourism is expected to
to carry out in-person viewings up until mid-
leading up to the 2008 crash. As a result, ex- slow and gradual comeback to normali- recover fairly quickly, whereas interna-
May. However, viewings are now possible, so
perts initially believed that we would also see ty. The sector is a stalwart for Spain and tional tourism will come back gradua-
long as safety measures are adhered to, such as
a quicker economic recovery, with many poin- its return will be positive for hotels, al- lly, picking up as and when a greater
wearing protective equipment, refraining from
ting towards the so-called V-shaped recovery. though this will not be noted for various perception of normality has resumed.
touching anything, minimising the amount of
However, time has gradually eaten away at months. Hotels will be allowed to reopen Countries that were hit hardest by the
people in a lift and maintaining a safe distance
this optimism and a U-shaped recovery now from phase 1, although all communal pandemic are likely to begin travelling
between each other. Prime residential proper- The professional rental market (PRS and We therefore expect there to be a spike in inte-
seems a more likely scenario. We are confi- areas must remain sealed off. However, overseas first, whereas those who were
ty will be less affected by this crisis. Once we build-to-rent) will flourish as banks become rest in out-of-town areas with good transport
dent that the impact on the economy and the many hotels have no plans to reopen more isolated from the crisis will be un-
have returned to normality, prices are likely to more cautious when it comes to lending and links, such as Rivas Vaciamadrid. There will
residential market will directly correlate with until people can freely move around the likely to open their borders in the imme-
fall. Some investors will look to the residential providing development funding, while con- also be greater interest in alternative living
the time it takes us to fully adapt to the new country again. The government has an- diate future.
market as a safe haven for their capital, as seen sumers will adopt a more flexible approach to options such as co-living, which offers greater
reality and for business activity to return to
in the aftermath of previous crises. housing. flexibility at a lower cost.
normal across all sectors.
16 17COVID-19 REPORT
Humphrey White Commercial Residential Research
Partner, Jorge Sena Carlos Zamora Rosa Uriol
Managing Director Partner, Head of Commercial Partner, Head of Residential Head of Research
+34 915 959 053 +34 600 919 004 +34 600 919 041 +34 600 919 114
Humphrey.White@es.knightfrank.com Jorge.Sena@es.knightfrank.com Carlos.Zamora@es.knightfrank.com Rosa.Uriol@es.knightfrank.com
Knight Frank Research publications Knight Frank Research provides strategic advisory services, consultancy services and forecasts to a wide
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