Unlike in March, lockdown this time around is not as total. Commercial and residential agencies are still open, surveyors are still be able to value properties and investors are still virtually-viewing them. Construction and manufacturing industries are encouraged to continue. Most important of all, banks are still lending and base rates remain low.
Up until now, the UK has been a beacon for commercial property investment the world over. Our geographical location, the rule of law and market conventions have made it the destination of choice for inward investment, contributing 14% GVA in 2018. It needs to stay robust. The private investors may not get much sympathy from us, but many property investors provide a lifeline for pensioners, charities and government bodies. A reduction or the disappearance of this investment stream could be devastating.
There have been some success stories – certain asset classes such as distribution and logistics, residential, healthcare and retirement living have all shown significant growth this year, and there has been a strong performance by the Supermarket Income REIT which makes sense. Meanwhile, some other funds have suspended trading in property and transactional activity has slowed considerably. There is talk of, and many blogs written about, the death of the office but others are calling it a new dawn for serviced and flex offices, especially in suburban areas offering a blend of office and home working.
Ever since the dawn of time, landlords and tenants have battled to level the balance of power between them. This battle was exacerbated by Covid-19 and the initial lockdown. During the first wave, shell-shocked tenants were given protection by government by way of certain emergency legislation, albeit temporary.
It has since emerged that larger tenants have been seen to work the situation to their advantage, withholding rent they could have paid where they had the power and backing to put measures in place to weather the storm, and threatening CVAs. This has allowed some of the corporate chains to cherry-pick their best assets and offload the unprofitable ones, to slash rents rather than re-organise the financial structure of their business. In the real world, some smaller tenants and those operating in certain vulnerable sectors are genuinely struggling and may not survive the economic slump we are currently experiencing.
As we can see, landlords have had to shoulder most of the burden so far. They have had limited control over the situation and still have work to do to actively manage their assets and build stronger relationships with their tenants in order to survive themselves. Difficulties will come if landlords face enforcement action under their funding arrangements. Banks have so far been flexible and have acted responsibly towards their commercial borrowers, allowing amendments to facilities and capital repayment holidays.
Landlords will want to preserve their income stream and the marketability of their asset and to avoid legislation which is seen as too broad and heavy-handed to fit into the agile world of commercial property, which operates best when it is left to its own devices - as change is best when it is proportionate and balanced.
On Monday, I will assess the changes we are likely to see in the day-to-day practicalities of the transactional property world as the battles continue between landlords and tenants.
- RICS’ Occupier Sentiment Index falls by an average of 28 points globally, while its Investor Sentiment Index falls an average of 24 points. - Investors and occupiers expect conditions to worsen, with expectations for rents and capital values over next 12 months falling sharply - Office sector sees most significant fall in confidence, as working patterns shift - RICS calls for collaboration between tenants and landlords in this time of crisis