Picton Property Income Limited Annual Report 2021

Strategic Report Our Marketplace continued

Market drivers and impacts Market driver

Impact

Covid-19

ӱ Economic, social, environmental and health ramifications will be felt throughout the world for many years to come. ӱ For the property sector, the accelerated changes in the way we live, work, socialise and shop are likely to have a lasting impact on the built environment.

The Covid-19 pandemic has been a significant disruptor to many aspects of life since the first lockdown began in March 2020. The legacy of the pandemic will be far reaching and is yet to be fully realised. The impact of the pandemic affects the economic, property, technology and environmental market drivers described below and is referenced throughout this Report. The vaccine rollout is now well underway and we are following the UK Government’s roadmap to post-Covid normality.

Our Covid-19 response

Economy

ӱ The Government reportedly plans to invest in infrastructure, the green economy and support ailing towns in order to stimulate economic growth. ӱ Interest rates are expected to stay lower for longer. ӱ The household savings ratio has remained at an elevated level, with the potential to boost consumer spending when restrictions are lifted. ӱ Due to the stimulus package, UK Government borrowing has reached the highest levels since World War II. Necessary tax increases will impact UK businesses and households in the medium-term. There is an increased risk of inflationary pressure.

Since March 2020 and the first national lockdown, the UK has been on a pathway of increased understanding, adaptation and coping with the Covid-19 pandemic. Subsequent lockdowns were less severe on the economy, allowing the UK to avoid a double dip recession. There has been extensive Government stimulus to protect businesses and livelihoods. Not all parts of the economy have been equally affected. The success of the UK’s vaccination programme is expected to allow a strong and rapid recovery during the second half of 2021. There are some elements of the Brexit transition process still underway. Amongst issues still to be determined are passporting rights for financial services.

Property cycles

ӱ The retail sector has been operating within a very challenging environment, with declining rents and capital values. There has been a recent improvement in retail capital value growth, particularly for retail warehouses and supermarkets, however it is yet to be known if all sub-sectors have reached a nadir. ӱ The impact of working from home during the pandemic on offices has caused uncertainty within the sector and led to a decline in capital values. There is increased polarisation between Grade A and other offices, with many occupiers pursuing a flight to quality. ӱ There is high demand from both occupiers and investors within the industrial sector leading to further price rises.

The property market is cyclical, with performance linked to economic growth. The balance of supply and demand in the investment and occupier markets impact pricing and rental growth respectively. Historically, all property sectors have moved through cycles broadly in unison; however, more recently there is a greater divergence between sectors. The declines in property values as result of Covid-19 were more strongly felt in retail and leisure; periods of forced closure, increased online spending, retail failures and CVAs all blighted the sector. Industrial property rallied during 2020 as demand for warehousing grew, helped by an acceleration in online spending.

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