Evidence of price adjustments on some office transactions: 5-10% reductions are talked about but considerably higher for secondary, retail, hospitality and development.
Re-assessment of tenant’s credit worthiness going forward. Definition of core will be narrowed and different risk premiums will be adopted to each property sectors and risk profile.
Investors wanting to see corporate’s Q2 2020 accounts.
Operational Real Estate, the darling for the past few years, will be re-assessed as an asset class.
Planning / zoning decisions need to be more flexible going forward to allow future uses and alternative uses in distressed product - for example, the high street and hotels being converted into serviced apartments.
Most cities seeing new occupier deals put on hold, unless well advanced. Some new deals/renegotiations happening on shorter lease terms. Rents are currently stable and seeing outward movements on incentives.
Travel, leisure, oil and gas, and co-working firms to experience distress, but some national governments are stepping in to support specific industries that are most severely impacted.
Offices need to become more resilient in the future from a hygiene and density point of view. Likely occupiers will look into their HQ space requirements with potential satellite offices becoming a new trend.
The return to offices will require social distancing for up to at least 12 months with shift work taking place with smaller teams. Large cities reliant on public transport will take longer to recover to pre COVID-19 office occupancy levels.
Some retail transactions have proceeded but these are either grocery led or have alternative use plays. Continued interest in such product. Secondary retail is seeing little demand.
Moratorium on eviction of commercial retail leases in some locations. Some landlords – including Grosvenor, British Land, LandSec – offering rent deferrals and direct tenant support. Some major retailers have sought to stop rental payments including H&M, Primark, Deichmann and Adidas. Following a consumer market backlash, Adidas apologised for taking this approach and agreed to pay April rent across its store portfolio. H&M agreed a larger credit line with banks.
Out of town retail parks which consumers can drive to and use ‘click and collect’ formats could recover quicker. These units are larger and so can undertake physical distancing.
Expectation of ‘revenge spending’ once lockdowns ease. However, long term view is high taxes and rise in unemployment will cause an effect on consumption.
I&L proving resilient – Blackstone closed several I&L transactions on same terms early in lockdown.
All the grocery chains are looking to boost their distribution capacity. Growth in on-line logistics as shopping habits change and China has seen a further boost from senior citizens continuing to use on-line post lockdown.
Emotional ‘chatter’ of bringing supply chains back to Europe, however, land is scarce, as is labour, and the labour market in Europe is more costly than Asia.
Sale and leaseback activity with Next, Topp Tiles and Walmart launching opportunities in the UK to raise cash.
As most Government stimulus is helping the hospitality sector and there is lobbying to extend, we are not seeing distress at present but we do expect more distress in the hotel sector to evolve over the next quarter. Most operators are working with skeleton staff to keep operating costs to a minimal however, big brands still have high fixed costs up to £300,000 per month on maintenance and utility contracts as well as IT.
2019 Revenue per available room (RevPAR) levels are not expected to return until the end of 2022 which is a massive challenge for banks.
Domestic business hotels will recover first with longer term pain for top tier luxury hotels as international travel will take longer to recover. Hotels specialising on events and conferences to suffer the most.
Landlord’s disappointed that Travelodge has not paid any of Q1 2020 rent in UK.
Residential is generally proving resilient. Greater focus on mid-market, affordable / social housing with caution at prime and micro-living ends of the market.
Seeing ‘Build to Sell’ schemes show resilience in markets such as Spain. However, in Sweden, developers change ‘Build to Sell’ schemes to ‘Build to Rent’.
Banks wary of student housing in 2021 - particularly universities which rely on foreign students.
UK student accommodation group Unite warned it could be hurt by virus-enforced travel restrictions reducing numbers of international learners. Their portfolio value falls 2.2% in Q1 due to coronavirus.
Seeing some distress, cost of operations rising short-term.
More scrutiny and caution to development / refurbishment.
Lack of skilled workers as they return to their home countries.
Evidence in London of bank margins increasing 150 bps+ for pure development.
The analysis and finding reported on this microsite is based primarily on Colliers International data, which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to, the forecasts, figures or conclusions contained in this report and they must not be relied on for investment or any other purposes. The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has impacted market activity in many sectors, creating an unprecedented set of circumstances on which to base a judgement. This report does not constitute and must not be treated as investment or valuation advice or an offer to buy or sell property. Given the unknown future impact that COVID-19 might have on real estate market supply, demand and pricing variables, we recommend that you recognise that our research and analysis is far more prone to market uncertainty, despite our endeavours to maintain our robust and objective reporting.