As many businesses continue to operate remotely during the coronavirus pandemic, concerns have been raised as to the future of many commercial properties in a post-COVID-19 world.
The coronavirus pandemic has led to more businesses adopting home working than ever before. Even those who have historically fought against allowing this to form part of their flexible working policies have found themselves with their hands tied as the global health crisis has forced them to adapt in order to survive. Many organizations have now been working for several months in a remote capacity and may have already seen the benefits of doing so. From increased productivity to reductions in sickness/absence and a reduction in operational costs, one can’t help but ignore the irony that some businesses may now actually be performing better and more efficiently than they were prior to the coronavirus outbreak.
As lockdown measures are relaxed and organizations prepare to reopen their offices, they are likely to be faced with some serious challenges and it certainly won’t be a case of returning back to normal. From health and safety adaptations to a staggering of staff returning and a continued home working arrangement for those who are either shielding or have school age children to care for, there are a number of factors which are going to influence how organizations can return to office life.
For some, it may be that they have realized that the business can work just as well, or better, without having to congregate in a centralized building Monday to Friday. Of course there is still a need to meet face to face, but the frequency of these meetings could be reduced, which means there may be no need to maintain the current sized office.
Downsizing might be the preferred option for some, which can be made easier if they are renting on a shorter term lease or are working out of a shared office space. The office could then be made into more of a ‘hub’ which is used occasionally by people but doesn’t house everyone at the same time. For others, they may opt to get rid of their offices completely. This is in addition to those businesses that unfortunately are not able to survive the pandemic and have no option but to close down, defaulting on their property obligations.
The knock-on effect on the property sector is that there is likely to be a distinct plunge in demand for commercial properties, along with potential renegotiations on existing or soon to expire leases. With predictions of a recession on the horizon, this situation is unlikely to improve even if the virus does become controllable, either through better treatment options or through the discovery of a vaccine. The Q1 2020: UK Commercial Property Market Survey by RICS says, ‘for the next twelve-months, rental projections turned negative in virtually all sub-sectors to a greater or lesser degree. Secondary retail rents are now seen falling by close to 12%, while the outlook is not much better for prime retail rents at -8%. At the same time, secondary office rents are now anticipated to decline by around -4% over the coming year’
Changes in shopping behaviour fueled by the pandemic have also led to a greater adoption of online shopping. This could mean that more retailers turn away from bricks and mortar stores, or reduce their holdings so that they operate more of a click and collect presence rather than a fully stocked operational store. From a business perspective this would make commercial sense as it reduces the need for as many staff and also reduces the costs associated with maintaining multiple large buildings.
The market is certainly turbulent and the future remains uncertain for many, particularly retailers who are suffering at the hands of the coronavirus pandemic. Of particular concern is the current predicament faced by one of the UK’s biggest shopping center owners INTU, who are now seeking $15 million in funding to continue operating. A failure to secure the funding could lead to the closure of some of the groups centers, which would be devastating to affected cities across the country.
Further reports suggest that the commercial property sector will remain in the negative for at least the next 12 months. That said, experts believe that the impacts will be fairly short term in nature and that over the long term, the commercial property sector will hold up relatively well. The previously referenced RICS report says, ‘On a more positive note, three-year capital value expectations point to an improvement in the office and industrial sectors further ahead, although respondents do not currently envisage any respite across retail.’
Property has historically remained a fairly stable and secure sector, but we have not experienced a pandemic of this magnitude for over 100 years, meaning that in reality, there is no previous benchmark which can be used as an indicator of what is to come.