A significant amount of arrears has already accrued since the start of lockdown in March 2020. Squeezed property companies have been caught in the middle with their tenants unable or unwilling to pay rent and their funders continuing to look for interest and loan repayments. Surging prices and limited growth have raised fears of a return to the stagflation of the 1970s. Hopes of a swift bounce back have been thwarted by a brewing cost of living crisis that has threatened to crush consumer confidence. Any increase in online activity fell well short of compensating for the collapse in overall sales. Retail and leisure were already in serious decline and have suffered the most, as footfall fell off a cliff. Real estate has been hit extremely hard by covid-19, with a sharp decline in values across all sectors. Norman Foster's offer to rebuild Kharkiv is indicative of the overwhelming support for Ukraine and the desire for a meaningful peace.
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Russia's invasion of Ukraine has created a humanitarian crisis, and a major global economic shock that is yet to make its full mark on real estate markets and the wider economy. In particular, non-listed real estate companies tend to weather geopolitical uncertainty relatively well and real estate is often considered to be a good hedge against inflation. The UK's real estate markets have traditionally proved to be remarkably resilient in difficult times, offering a safe haven to investors in times of political and economic instability. However, this is not expected to create an onerous burden for legitimate overseas investors seeking to acquire UK property and is unlikely, of itself, to deter investment. All overseas companies owning UK property will need to register details of their beneficial ownership. Although the introduction of the new legislation was accelerated by the war in Ukraine, much of it had been planned for some time. The Economic Crime (Transparency and Enforcement) Act 2022 provides for a new beneficial ownership register for overseas entities holding UK real estate, the strengthening of unexplained wealth orders and the more effective enforcement of sanctions. The war has led to a number of sanctions and other measures aimed at economic crime. In addition to any direct exposure to Russian real estate, there is also the more complicated issue of extricating deal structures from Russian-backed ownership and financing. The UK has arguably been less affected than mainland Europe, where Germany and those countries closer to the conflict have borne the brunt. Real estate investment confidence has been knocked, and there has been a marked decrease in real estate M&A and private equity activity. In addition to the humanitarian crisis, Putin's invasion of Ukraine has, of course, had a significant effect on the European economy. Tragically, it has become increasingly difficult to see a satisfactory and peaceful resolution to the conflict in the short to medium term. After more than two years of the pandemic, and its heart-breaking toll of more than six million deaths, the world is now faced with the devastating reality of war in Europe. It is extremely unfortunate that this edition of The Real Estate M&A and Private Equity Review is once again dominated by bad news.
However, on 24 February 2022, Russia's large-scale invasion of Ukraine served as a terrible reminder of the lurking menace of political instability and its effect on world politics and the global economy. Coming out of lockdown heralded a very welcome resurgence in activity as investors started to embrace a return to pre-pandemic conditions and take advantage of investment opportunities. In case we forget, the implications of leaving the EU also continue to rumble along in the background.
Global political risk and a hardening of the macroeconomic environment have overtaken the pandemic as the main factors affecting confidence in the real estate M&A and private equity sectors. Following the devastating global impact of the covid-19 pandemic, President Putin's brutal invasion of Ukraine has become the latest major world event to dominate the political and economic landscape.
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