Although it is still too soon to predict the real impact of COVID-19 on the Spanish real estate market, we must consider that the agile response after previous critical situations has led to a fast recovery of business activity, in some cases with even greater intensity than expected. In this case, the recovery will very much depend on how far the aid measures designed by the European Union, the European Investment Bank and the various governments go to support the small and medium-sized enterprises.
It is important to note that the current situation differs from all previous scenarios due to the dormant state of the economy, which will remain for an unknown period. This will significantly impact economic growth in 2020.
The EU is focusing much of its economic aid on containing unemployment and the destruction of industry.
The government, which has prioritised curbing the infection rate at all times, has left the national economy at a standstill for two weeks, with a temporary halt to the construction sector and most production activity. However, in return, it has steadily taken measures focused on mitigating the impact of the health crisis on the Spanish business sector. These include making ERTEs (record of temporary employment regulations) flexible, a tax debt moratorium for certain companies and self-employed individuals, and a set of guarantees of up to €100,000m, which will be applied for through financial institutions that have an agreement with the ICO (Official Credit Institute).
In this regard, the EU is focusing much of its economic aid on containing unemployment and the destruction of industry, allocating up to €500,000m to maintain jobs and keep businesses active throughout the Eurozone.
In the occupier market, the overall moderation of business activity has been reflected by the postponement of the search for new work spaces in all real estate sectors. The investment market has been equally affected. Both buyers and sellers prefer to defer decision-making to see how the situation develops.
The excess liquidity and the security of the real estate sectors in the most consolidated markets provide an optimistic outlook about the investment market.
The excess liquidity and the security of the real estate sectors in the most consolidated markets provide an optimistic outlook about the investment market. Moreover, the experience of the Asian market after the last health crisis (Sars, in 2003) shows a rapid recovery, even detected in the quarter following the end of the crisis. That is to say, there was an initial standstill caused by uncertainty, which led to a solid business recovery.
It is also necessary to take into account the extreme volatility in the financial markets as well as the low rates, which are expected to last longer, thus strengthening the position of the real estate sector in the investment market.
The crux of the matter is, on the one hand, the duration of the health crisis, which is estimated at several months, and, on the other hand, the market’s ability to recover after the crisis has been overcome. This will depend on the individual circumstances before the current impasse.