QuoinStone Outlook
January 2022

In our first bulletin of 2022, we look back on the events of the last two years and predict what they might mean for the future. One thing we can be sure of though, is that the uncertainty we’re living with now will continue to be a feature for the foreseeable future.

The Market - Our Review and Predictions for 2022

At any point in the market cycle, whether it be in the midst of a global pandemic, or the hour before a worldwide financial meltdown, there are winners and losers.

Over the last 20 years that we have been in business, and as repeated ad infinitum before that, we’ve seen that anyone and everyone is susceptible to being on the wrong side of a tectonic shift in the market. And given the well documented hopelessness of predicting the future, it’s equally a matter of luck to be on a winning shift in fortunes. This issue is magnified as a property investor due to the illiquid nature of the asset class and the time it takes to reposition. So without the benefit of hindsight quality foresight, how will markets change...?

The markets that have done well and not done so well have been covered elsewhere. We are interested in how property, as an asset class with distinct features, should be approached from an investment perspective. The illiquidity of property is both its attraction and its biggest problem – and this is where we see big changes afoot.

QuoinStone IM 2022 Predictions

So what are the areas of change for the future?

Ownership
There is no reason why property should not be owned and traded in the same way as corporate entities. Both are complex financially (arguably companies being more so) and both are unwieldy to buy and sell. The difference is the completely routine way that shares are traded transparently in the open market. Having experimented with crowd ownership in commercial property in 2017/18 and seen the huge regulatory problems of that model, the emergence of IPSX would seem the breakthrough medium that will allow property to be seen in the same light as trading companies across the globe. This train has started to roll and we think the change is now inevitable (and desirable).

Responsible Financial Management
We have seen the varying styles of a broad range of property investors over the last 20 years and the approach to cashflow management is stark. Smaller, private investors tend to treat the cashflow as both the source of distributable income and the source of funds for the rainy days. Much like a responsible corporate entity will retain profits sufficient to see them through the foreseeable road bumps of commerce, private owners also value the comfort in retaining cash to avoid having to put money back in when times are not so great. At the other end of the spectrum, the drive to distribute as much income as possible leave property entities underfunded and the real estate undermaintained leaving capex requirements to the next owner. We see a shift to more responsible cashflow management as a necessity driven in part by ESG requirements that are now unavoidable across the market.

Long term ownership vehicles are becoming more normal and 3-5 year property plays look less and less sensible when macro-economics throw a spanner in the exit works.

Environmental Impacts
The environmental impact of existing legacy property stock is well known. As we come out of Covid over the next few years, attention that may have been lost to fire-fighting the here-and-now will shift back onto ESG and how occupiers and owners will meet their obligations to future generations. Whatever we think of Greta, she has history on her side and environmentally poor properties will be un-investable across the institutional sphere.

Recognising this is a good thing and an investment opportunity in its own right.

The Future

As we begin 2022, all eyes are still on Omicron. With current uncertainty levels, it’s a mug's game to predict what might happen next month, let alone next week.

However this Covid variant pans out, what we do know is that, despite some woefully bad decisions by those in power across the globe, the industrious world of property continues to find solutions and to evolve.

For such a cumbersome profession, we seem to adapt at a breakneck speed when required! We hope that you have had a restful break and contact us if we can help with your property activity in 2022.