This isn’t another GFC, but it won’t be a walk in the park either

It’s hard not to be sucked into the vortex of doom and gloom at the moment. Forget wading through treacle. Navigating the current market is more like trying to progress through rapidly drying cement.

Deal activity remains subdued. Funding is nigh on impossible to raise. Even the industry golden child, life sciences, is struggling, investment volumes across the Oxford-Cambridge Arc plummeting 70% in the first half of this year, according to Bidwells. Rishi Sunak has just kicked the industry when it is down by extending government climate target deadlines (although I won’t lie, I’m relieved about the stay of execution for diesel cars and gas boilers because I can’t afford the electric/green alternatives). So, should we be bracing ourselves for a winter of discontent, or worse, a year or more of it?

This month marks the 15^th anniversary of the collapse of Lehman Brothers. Most experts have to date dismissed comparisons between the Global Financial Crisis (GFC) it helped spark and today’s market, just has they’ve rubbished suggestions that we’re experiencing a repeat of the 1970s. They are right to say the current market is different. That doesn’t make it more benign, though, as everyone waiting in vain for the usual September flurry of deal activity will attest.

For weeks now, I’ve been saying this will be the week everyone is back in the office and the market kicks back into gear. But the OOOs keep hitting the inbox in volume when we send out our daily BE Alert newsletter, and while I’m receiving a steady trickle of deal-related press releases, that is all it is: a trickle.

Opinion is divided over when the trickle will turn into a flood, or at least a stream. In an exclusive interview with BE News, industry legend Sir John Ritblat says he remains sanguine and that people will look back at year end and think 2023 wasn’t too bad all things considered. The year will have been mixed because the economic outlook is mixed, he reasons.

That doesn’t mean there is no more pain to come. All bar one of the other industry leaders I have spoken to recently echo Nick Leslau’s observation that the market was even quieter than usual over the summer. The outlier who says his firm remained busy throughout notes that it operates in sectors such as hospitality, which are holding up well, but highlights the radical repricing in other sectors.

He cites an investor that was looking to sell a central London office asset for £300m and was informed £120m was a more accurate valuation. “What are the chances of getting £200m?” the investor asked. “Zero to 5%, but closer to zero,” was the blunt response.

The housing sector hasn’t fared any better. Another contact, a developer, estimates that his business is down by 70% and says he doesn’t expect things to be going gangbusters again until 2026. Another stresses how challenging trading is and how difficult it is to raise money. Yet another describes his business as “in hibernation”.

So, could the recovery really be as far off as 2026? With the Bank of England holding the UK base interest rate for the first time after 14 consecutive rises, at 5.25%, and inflation finally starting to slow, some experts are hoping (if not expecting) activity to start picking up a lot sooner than that – as in now.

The question is: what sort of activity? Valuations have nosedived this year and many are expecting more distressed assets to hit the market and, correspondingly, further repricing. Leslau warns: “Pricing could come down by another 10% or more before we start to see any stabilisation, especially in the non-vanilla assets.”

Unfortunately, there are rather a lot of those around at the moment, so while this is no GFC, don’t expect the next few months, even years, to be a walk in the park either.

The future of the workplace

Where are you right now? In the office? Working from home? If you’re full time and reading this on a Monday or a Friday, there is a good chance you’re at home. If it is Tuesday, Wednesday or Thursday, you’re probably in the office, possibly having struggled to find an available hot desk.

Our work patterns are very different to what they were pre-pandemic – and while the great return to the workplace has picked up momentum, driven by the very tech companies that during the pandemic were first to desert it, the prospect of being back in the office five days a week is slim to nil. Discover what impact changing working patterns are having on the office in our second BE Informed edit, on ‘The future of the workplace’ and do get in touch if you would like to contribute to our next edit, on ‘The A to Z of ESG’.