The discovery of a new strain of Covid-19 in southern Africa has rocked the markets. The new Omicron variant was quickly declared by the World Health Organization (WHO) as a “variant of concern”, given a high number of mutations which suggest that it may be both more transmissible and more harmful than previous variants, while potentially making existing vaccines less effective.
At the time of writing, global equities are down 3%, listed real estate down 4%, US Treasuries yields are down 20 basis points (bps) and the price of oil has fallen. is more than 14% below recent highs. . The reaction was more extreme than following the emergence of the Delta variant – a function of the potential severity of the variant (Delta was originally designated as a mere “variant of interest” by the WHO), as well as the underlying political context at the start of a tightening cycle.
The economic impact will be determined by two factors: politics and fear. The latter will be more important in determining the level of the downturn in activity, given that households and businesses are now much better prepared for a new lockdown. But there are good reasons to believe that the impact will be limited. We are now used to living with the virus, and the response of governments – to protect workers and / or support the temporarily unemployed during the peak of the crisis last year – potentially creates moral hazard that could limit the type of behavior. generally associated with periods of heightened uncertainty.
However, politics still have a role to play – both through the implementation of physical restrictions on trade, such as those on travel, tourism and recreation, as well as through macroeconomic policy. The job of central bankers is made more difficult as Omicron further complicates the inflation narrative – potentially intensifying some of the “transient” drivers of price increases – although we are likely seeing a more accommodative stance on monetary policy, and this is in part reflected in recent yield movements. Politics and fear are not mutually exclusive – the severity of public health restrictions can influence fear, which subsequently determines the extent of policy makers’ response.
Real estate is not immune to politics or fear. We’re all well aware of the implications of an additional foreclosure on the retail and hospitality industries, or a return to work from home for office space. A potential collapse in international travel will also affect cross-border activity, while a drop in sentiment could make December transaction activity a bit more subdued. But perhaps more importantly, Omicron is a stark reminder that we are no closer to beating the virus. And it will reinforce some of the structural trends affecting demand on basic real estate assets.
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Contact Oliver Saumon
Savills plc published this content on 03 December 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on 03 December 2021 14:41:04 UTC.