Ryanair’s ebullient Irish chief executive Michael O’Leary believes that the British economy is set for the “mother of all bouncebacks” this summer following the successful British vaccination rollout. Even discounting his usual hype, he’s gung-ho on British holidaymakers’ prospects for flying soon again, while scornful about the rest of Europe’s chances, given the vaccination distribution fiasco.
The AstraZeneca cock-up and the mutual blame-game recriminations of the EU and its member-states means Germany may have lost three months of its optimistic schedule for jabbing the elderly, the vulnerable and its frontline workers – and as a consequence, strangling domestic and foreign travel and further constraining the opening up of its economy.
For once, early-rising Britons holidaying in southern Europe may indeed find the deck chairs remarkably free of German towels for the first time in living memory. They’d be well advised to enjoy their dominance while they can. The Germans will be back, of course, but it looks like this year again will prove to be an unwitting bonanza for German domestic tourism, as families and young people shun air travel and are encouraged to re-discover their own beautiful country by holidaying at home.
Regional property agents across Germany tell us of a surge in demand for holiday homes in the most desirable regions, with prices (and rentals) on the North and Baltic Seas, the Alps and the Black Forest seeing jumps of 20% and more. But even more modest regions within reach of the big cities, such as the Eifel, the Mosel, the Spreewald and the Mecklenburg Lake District, are all benefiting from the Bright New Future held in the promise of working from home.
As we sit out the coronavirus crisis and await more price visibility in the commercial real estate markets, it’s clear that German residential as an asset class is likely to remain an investor’s favourite for some time to come. Leaving aside the annual plaintive bleatings from the Bundesbank about prices being up to 30% overvalued, even the doom-mongers at research group Empirica have quietly ceased trumpeting the latest readings from their famed Bubble-Index, which five years ago was bracing us for the imminent collapse of residential property prices. The market ignored them then, and rightly so.
Germany’s Verband der deutschen Pfandbriefbanken (VdP), the association of mortgage-financing banks, saw its influential price index rise by 6.1% annually at the end of Q3 – largely due to the rise in the residential component, which rose by 7.1%. The rise in the bigger cities was less, indicating a compensatory effect in rural regions and in the urban hinterlands, and ties in with anecdotal evidence and our own observations.
The near 15-fold rise over the past ten months in the share prices of companies such as Wayfair and Westwing Group, which sell lots of things online of interest to those kitting out home offices, attest to the enormous demand in certain consumer sectors that are helping to keep the economy ticking over so remarkably well, in the face of all the visible misery.
A propos misery, back to our British friends. Behind all the triumphalism of the vaccine rollout – and not a little Schadenfreude at the EU’s difficulties – it’s easy to overlook the enormous difficulties being faced by countless small British companies who are being faced for the first time with the realities of Brexit. Even proud-braying Brexiteers are appearing completely flummoxed at the new non-tariff - but Brexit-related - hurdles suddenly threatening their vital cross-border trade with Europe.
To take one example. Nobody seemed to have foreseen that in many instances, European recipients of products from the UK would be asked by their courier to pay VAT upfront on UK goods in order to get them cleared through customs. Tens of thousands of EU customers are not surprisingly refusing to do this. The result is a massive bonfire of UK products for whose exporters the new rules make it even too complicated to deal with this ensuing wave of returns.
These may be teething problems, and doubtless in time there will be workarounds to what is likely to become a national crisis in the UK. But even Britain’s Department for International Trade is advising UK exporters that the problem will persist, and the best solution is to set up their own small company in the EU – the Netherlands or Belgium would be happy to oblige – and ship to their own distribution warehouse, from there to service their EU customers. Assuming customers remain loyal and delivery delays tolerable – a big assumption - it of course means more jobs in the EU, less in the UK. This was not difficult to predict.
For investors, it also means a big jump in demand for warehousing space, already the big winner in the asset category stakes – logistics. And to that we’d add light industrial and urban logistics, where the demands for high-tech sophistication are lower, the buildings smaller with a higher office component, but where prime yields are still above 5%. That will be a sweet spot in an increasingly crowded sector.
