March 5, 2020
The spread of coronavirus shocked global markets last week. Share prices fell significantly regardless of industry or sector, and although there has been some recovery, investors are still clearly worried about the virus’s knock-on effects on the economy. What might have been lost in all this worry, however, was that some sectors – including real estate – weathered the storm better than others.
The FTSE 100 fell 11.1% from when markets opened on Monday
21 February and when they closed on Friday 28 February. The FTSE 250 was down
11.2%, the Small Cap index was down 11.1%, while FTSE AIM fell 12%. In other
words, this was a shock that businesses felt whether they had a market cap of
£100bn or £100m.
But dig deeper into those numbers and the picture isn’t
quite as clear-cut. On average, REITs outperformed the wider market. On the
larger end of the market, the outperformance was slight: FTSE 100 and FTSE 250
REITs were down 10.1% and 10.2%, respectively, just one percentage point above
the average. REITs in the Small Cap (-7.3%) and AIM (-7%) indexes, however, recorded
what was closer to a four percentage point outperformance. In other words,
investments in Small Cap REITs fell 28% less than investments in FTSE 100
REITs. Both suffered under forces out of their control, but one group was more
sheltered from them than the other.
What does that tell us? When a crisis shakes investors’
confidence in the economy at large, the biggest companies have less opportunity
to outperform than smaller ones. It’s true that businesses closest to the
crisis suffer the most – EasyJet’s share price, for example, fell 19.6% last
week – but companies within the FTSE 100 and 250 are the most susceptible to
changes in general economic sentiment as investors buy or sell shares in the
index as a whole. Real estate isn’t at
the centre of this crisis, but its biggest players have had just a marginal
advantage over other sectors.
It highlights the value of smaller, industry-specific
investments in a time of crisis. Real estate can act as a buffer in these
situations – as long as the investment platform allows it to do so.
As we gear up for the first listings on the International
Property Stock Exchange, investors will soon have a platform that truly
understands and specialises in this asset class. A prime London office can
stand on its own as an investment without being part of an index that acts as a
proxy for economic sentiment.
As this last week has shown, investments shielded from the volatility of general sentiment are best placed to outperform the wider market. IPSX can be that shield for the built environment.
Managing Director and Head of Capital Markets