Over the course of this week I’ve noted some insightful commentary and analysis on the commercial and resi property market due to the lockdown, from a range of sources including, newspapers, news websites and YPN magazine.
These aren’t my thoughts, rather I’m playing reporter here for your convenience and my own insight as understanding these impacts is needed to inform our investment decision making.
Below is a summary of insights that may help your thinking as business owners, entrepreneurs and investors looking to respond to the ‘new reality’.
CONSTRUCTION AND HOUSE BUILDERS
*Economies of scale for developers will no longer be possible – Builders are gradually returning to work, but under new rules – social distancing rules will restrict the number of workers allowed on site.
*Safety measures will mean sites can function only at a fraction of usual capacity and most big sites will have a dedicated COVID -19 supervisors checking that subcontractors know the rules.
*Efficiency & output will likely suffer on construction sites, this will undoubtedly have a knock on effect on budgets. As an SA operator I’m also conscious of the possible knock on effect it has on demand for accommodation from certain contractors.
HOTELS & HOSPITALITY
*SIr Rocco Forte, who runs hotels across Europe, said that when they do reopen, rooms will take twice as long to clean using UV light, and enhanced techniques, buffets will not be available and with travel restrictions in place the lucrative foreign visitors will be slow to return. He said he would have to, “increase marketing to locals”, and this will likely be the order of the day for many in this sector.
*Zizzi and ASK Italian, under the Azzuri Group, have called in restructuring experts KPMG.
*Pub chains are trialling home delivery while trying to figure out how to put in place safety measures that don’t completely take away the point of a pub, which is socialising. However it may work out more expensive to try to open than stay shut.
*Sit-down meals are expected to be off the menu for the foreseeable future with restuarants encouraged to offer takeaway instead. Whilst achievable for fast food chains, not so for the mid and high end restaurants.
*SA operators whose business serves the tourism market will naturally be feeling the pain however many will be switching back to long term lets or finding opportunities to serve their local council or the NHS. Many expect that once lockdown ends, the British public will want to get out of their homes, and with travel restrictions there may well be a big spike in demand for UK holiday lets later in the year, and likely more so than for hotels.
* Cleaning practices will naturally be on the front of every guests mind as they will be seeking extra assurances – I came a across a new phrase in one of the articles which referred to “cleaning theatre” – in other words the hospitality sector will likely make sure staff are overtly seen to be cleaning surfaces in front of the customers’ eyes.
RETAIL
* High st retailers will have to figure out an array of logistical challenges to ensure they can trade whilst adhering to social distancing rules.
* There is the weigh up of whether opening is worth it – I read that the cost of opening could well exceed the benefits ie once shops open it will limit their ability to request rent concessions and it will force them to take staff off furlough as well as invest in PPE and associated measures.
* Greggs are reported to be selling a reduced range of products and have tried introducing click and collect to test whether it could operate with social distancing but have abandoned the idea.
* Retailers expect that shoppers who do want to venture out are more likely to brave the retail parks than the high streets because of easier car access and larger stores mean easier distancing.
*I read a lengthy article about Mike Ashley (of Sports Direct) saying the old leasing model is finished. It was about turnover rents where an agreed proportion of the rent fluctuates depending on a store’s sales. Major retailers are putting increasing pressure on landlords for this type of lease however they are complex and subjective to work out ie landlords would want a degree of online sales to be taken into account. The article went on to say that institutional property owners back the idea in theory but are reluctant to agree because it would force property valuations down.
OFFICE PROPERTY
*With social distancing likely in place for the rest of the year many offices will be operating at half capacity or less.
*Several major banks were referenced as likely to operate with 25% occupancy in the offices and doing things like moving desks into canteens to allow more people to work under distancing.
*In large buildings and skyscrapers they have to think about the challenges of how to avoid pressing lift buttons and touching internal door handles.
*This new ‘Zoom era” will be prompting many organisations to reflect on working practices and the need for renting as much office space.
*This could lead to planning laws that previously inhibited change of use soon become more relaxed.
*More than ever a commercial investor would definitely want sight of more than one exit with a prospective property ie with a feasible conversion to residential being the most likely back up.
HOUSE PRICES
*The Centre for Economic and Business Research forecast that house prices will fall by 13% in the year to March 2021. However Savills were more optimistic expecting short term price falls to be in the 5-10% range.
*On a positive note YPN Economist Chris Worthington commented that, “the residential property market is more resilient than most other sectors of the economy”.
*Some experts feel that many landlords who are already fed up with increasing legislation, will see this as the last straw and want to sell their properties. With fewer buyers in the market this means prices will fall a bit and it will present some great buying opportunities.
*Many feel that rents in the PRS will drop (I’ve already experienced the need to drop rents for 3 months or more in student areas in order to attract new tenants).
*What about home buyers seeking mortgages? – How much should be lent to borrowers who have been furloughed? An article in this Sunday’s business press stated that most lenders will only approve loans based on the furloughed income ie the 80% of salary.
*The income multiple for first time buyers has been at 3.47 times salary and some analysts believe this will be cut to 3 times which would significantly reduce the amount the average first-time buyer can borrow. In my view these last two points make the case for decent rent-to-buy offerings even stronger.
What have you read in relation to the economic impact for property people that might be helpful sharing?