Assessing Impact of Volatility in Emerging Markets; the Recent Run of Good News for the UK Economy, Which Has Lasted Long Enough to Underwrite a Recovery for the Commercial Property Market, Could Be Faced with an Economic Storm from Overseas Judging by Bad News from Emerging Markets Says James Roberts, Head of Commercial Research, Knight Frank

The Journal (Newcastle, England), February 26, 2014 | Go to article overview

Assessing Impact of Volatility in Emerging Markets; the Recent Run of Good News for the UK Economy, Which Has Lasted Long Enough to Underwrite a Recovery for the Commercial Property Market, Could Be Faced with an Economic Storm from Overseas Judging by Bad News from Emerging Markets Says James Roberts, Head of Commercial Research, Knight Frank


THE question is "has commercial property escaped from the euro crisis frying pan, just to tumble into an emerging markets fire?" After all, stock markets in the west have been falling in response to events in Asia and the Southern hemisphere in recent weeks, suggesting the fallout is now reaching us. Given this, it is worth examining how the UK commercial property market responded to the events of 1997-1998, the time of the Asian and Russian financial crises. An analysis of this period suggests UK property is well-positioned to continue recovering, and may even benefit.

The Asian Financial Crisis began in the summer of 1997, yet the IPD capital growth index continued to rise throughout the second half of that year. In January 1998, when Indonesia and South Korea took IMF loans, the pace of growth for the IPD index slowed sharply, but it continued to rise.

Untangling how much impact the 1997-1998 emerging markets crisis had on UK property is difficult. However, it is noteworthy that the crisis had to draw much closer to home, and in particular enter the mainstream of the western financial system via the collapse of the hedge fund, Long Term Capital Management.

The emerging markets did not carry enough weight 17 ago to immediately impact the UK real estate market and investors had to be concerned that the crisis was turning systemic and global in order to take money off the table, albeit only briefly.

This is perhaps the main source of concern about the current bout of emerging markets volatility - today they have more economic clout than in 1997-1998.

Emerging markets investors own a string of trophy assets in London, although there would probably be a queue of buyers if they wanted to sell. …

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Assessing Impact of Volatility in Emerging Markets; the Recent Run of Good News for the UK Economy, Which Has Lasted Long Enough to Underwrite a Recovery for the Commercial Property Market, Could Be Faced with an Economic Storm from Overseas Judging by Bad News from Emerging Markets Says James Roberts, Head of Commercial Research, Knight Frank
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