How longer term property strategies are being shaped by Covid
By Joe Wilshaw, director at Roberts Vain Wilshaw Chartered Surveyors
It’s been four months since the lockdown measured were introduced on 23rd March and despite efforts to return to some degree of normality it still seems way off. The long-term impact of Covid on the commercial property market remains to be seen but the retail sector, already on life-support after years of diminishing sales and competition from on-line trading, has been dealt another massive blow from which it might never recover. The list of companies going into administration seems to be never ending and includes a growing number of restaurant chains. We haven’t seen the end of it and surely now is the time to consider permitted development rights for retail to residential?
Whilst Covid’s impact on the retail property sector has taken centre stage, the fate of city centre offices seems to be quietly simmering (or is that simpering?). Several large occupiers of city centre offices have already confirmed that they aren’t planning a full-scale return until the end of the year whilst others, with plans in place to allow up to 25% of the workforce at any one time, are seeing take up nowhere near this level. From discussions with clients there’s a number of reasons for this, some staff are struggling with child care now that the school holidays have officially started but with no holiday clubs, others simply don’t want to venture onto public transport to return to the office and then be faced with queues for the lifts, one way systems and limited interaction with colleagues anyway.
The warehouse/industrial sector is bucking the trend and remains strong and we think is likely to continue to do so. Lack of stock is the main factor and for example the north west industrial market has been extremely active since the beginning of the year with take up approximately 25% above the 5 year average for the period.
Covid 19 seems to have had little impact on this sector, other than causing delays on viewings and in some cases, deals taking slightly longer to get across the line. We are seeing activity across the market from both occupiers and investors. Freehold premises are still few and far between. This could change if the market takes a hit as some predict towards the end of the year, the consensus however is that demand will remain high as we continue to move out of lockdown.
If nothing else, Covid has created a huge leap in the adoption of home working technology. Remote working tech, ranging from voice calls imperceptibly routed to mobiles, remote access to your own CRM and other bespoke systems, Office 365, collaboration using Teams, Zoom video calls and online productivity tracking have all taken a quantum leap in the levels of adoption since Covid reared its ugly head. This is a huge advance in adoption rather than new technology itself with Covid acting as the catalyst for rapid implementation on a truly massive scale.
Four months on and in the main, this large scale adoption of technology is now shaping longer-term property strategies. Some occupiers have already started discussing alternative options, whether that be downsizing or moving to out-of-town locations that don’t have the same reliance on public transport. Whilst a Covid vaccine could alleviate the public transport fears, the technology cat is well and truly out of the bag and there’s no way it’s going back in. Home working has proven to be both effective and resilient enough to warrant being a permanent feature of many businesses. With more staff home working on a permanent basis is it inevitable that there will be reduced demand for office space?
So to strategy….
We continue to see strong demand for warehouse/industrial Sale and Leasebacks – where occupiers sell the freehold but take a lease on market terms, allowing them to stay in occupation but releasing the capital tied up in their freehold buildings to ease cash flow in difficult times. The office market isn’t quite as interesting but there’s still demand for the right covenant.
The 2021 revaluation that was postponed back in May to ‘give ratepayers certainty’, has just been confirmed as taking place from 1/4/2023 based on post-Covid 1/4/2021 rental values. The only certainty that this brings to retailers is that their rateable values will be too high until 2023 and surely means that the Government will have to retain retail discount for at least until the new list comes into effect. It’s still not too late to raise appeals because of the Material Change in Circumstances caused by Covid but action needs to be taken quickly. Vacant space presents opportunities for savings through a number of approaches.
There isn’t a one size fits all approach to commercial property and a bespoke strategy can help occupiers through the difficulties created by Covid. Whether you occupy a single unit or a national portfolio, we can help you review your options, minimise property costs and optimise your property holdings for future success.