Control your uncertainties

In 1921, American economist Frank Knight distinguished uncertainty from risk, with uncertainty being a lack of knowledge which is immeasurable and impossible to calculate and risk, in most cases, a measurement that can be quantified.

The property industry mostly uses historic trends and data to predict the future of property prices, and whilst useful it’s rather a crude way. Every event that impacts pricing is different, with different sectors being winners and losers on each occasion.

Rewind 12 months, both the commercial and residential markets were bouncing with confidence. Then came the appalling events in Ukraine which gradually impacted the economy as energy price increased and inflation took hold. Then, well, we all know what happened on 23 September 2022. Even Frank Knight would have been blindsided.

The Insolvency Service has stated that the total number of company insolvencies registered in England Wales for 2022 was 22,109, the highest number since 2009 and 57% higher than 2021. Pretty grim reading. No more miserable news from hereon in.

The first three months of 2023 has put a little bit more bounce in our step. There are many reasons to be optimistic, it’s time to take control, quantify the uncertainties, and make strong decisions such as the following.

The green property revolution has to accelerate. From 1 April 2023, it will be unlawful to continue to let a commercial property with an F or G rating, even if the lease was granted prior to MEES coming into force in 2018 (exemptions apply). Whilst most property owners are unlikely to be fully prepared for this, it must be seen as a catalyst for change. After years of talk, the industry must take tangible action to decarbonise, accelerate progress and build a sustainable future.

The use of tech in property needs to be fully embraced. It’s fair to say real estate has been slow to adopt tech, and other than prime office buildings where data driven decisions benefit the owners and occupants, technology has the potential to transform almost every aspect of the property lifecycle. Those who are prepared to embrace new technology will find themselves ahead of their peers in short order.

There’s no getting around the unsettling pressures of energy prices and supply, inflation, interest rate rises and internal politics, which is adding to the overall uncertainty for property players. But I promised optimism, the property industry likes a challenge, to solve problems and to face up to adversity.

Stability is what everyone craves for in H1 2023, and there are some early indications that market conditions are steadying. Most of the housebuilder stocks are no longer oversold and have a ‘hold’ rating. REIT stocks have stabilised. Average house prices have stabilised following significant monthly falls. Industrial and warehousing now looks competitively priced.

If Frank Knight was to provide one bit of advice, it would most likely be to take control and don’t allow a lack of knowledge of obtainable facts add to your uncertainty. That is, there may be uncertainty about the market, but make brave decisions to remove as much of the uncertainty as you can.