Just about a year into the COVID-19 global pandemic, and there is no doubt that the world as we know it as changed.
Most businesses across every sector have been hugely impacted in one way or another. And while the extension to the stamp duty holiday until June 2021 is welcome news for residential property, what’s the score for commercial property investment?
Commercial property investment is still a good option
Budgets are stretched across the board leaving investors to constantly review their investment portfolios. While the first national lockdown in the UK was over by the summer of 2020, unfortunately since then we’ve endured two more.
The current UK lockdown will begin to ease from 8 March for schools. However, the hardest hit sectors, including retail and hospitality won’t necessarily be up and running until later. And while the country waits for the official date of 21 June for lifting of all restrictions, the commercial sector continues to pivot.
When the UK first went into lockdown on 23 March 2020, almost every sector was closed down for at least a few weeks. This included construction, with the associated knock-on effect on developers of all kinds. But during the second and third national lockdowns, the construction is allowed to continue its work.
Estate agents, developers, construction workers and tradespeople have, therefore, been continuing business as usual – albeit in a rather different world. Office workers and employees across other corporate sectors have also been permitted to travel into the office if they can’t work from home.
Working from home measures shift the focus for commercial office space
Undoubtedly, one of the biggest shifts for the commercial sector is a direct result of changing work patterns in offices. Retail and hospitality have been hardest hit, of course, with millions of people simply not working during lockdown.
During the second lockdown last year, Accumulate Capital’s survey showed fundamental changes that are likely here to stay for the office property sector. The data shows that 73% of high-level decision makers think that COVID-19 will lead to corporations downsizing or getting rid of their physical office space over the next 12 months.
Working from home is now accepted by many businesses as a workable solution. However, some business leaders disagree. For example, the BBC reports that Goldman Sachs boss thinks that working from home is a temporary ‘aberration’. David Solomon, for one, is determined to ensure his workers get back to the office as soon as possible. His views fly in the face of other major businesses, such as Microsoft, who have already announced that remote working will be permanent.
And while different sectors will inevitably see their future differently, there is no doubt that younger industries will embrace remote working even when the pandemic is passed. This means that the commercial sector must continue to adapt.
Landlords want more Governmental support
Demand for physical office space has, therefore, dropped. However, the changes and expansion in development legislation feasibly allows for a remodelling of existing office space. We will likely see tenants asking for consent to change the previously restrictive clauses to allow alternative use of previously strict office space.
Landlords, on the other hand, will need to find a way to move with the changes while also protection their position. There has been much uncertainty for commercial property landlords since the start of the pandemic, with a perceived skewing of the landlord/tenant relationship.
But all of the legislation still in place brought in for the pandemic is temporary, and the most likely scenario is that when the vaccines bring the virus under control and hospitality and retail sector reopen, this will change again. There is a feeling within commercial property that the Government should do more to boost the sector.
Other European countries have created different schemes to support both the landlord and tenant. For example, in Denmark there has been the introduction of space furlough schemes. These effectively share the costs of being shut down between the Government, tenants and the landlord. Similarly, in Sweden there are Government subsidies for commercial landlords to compensate for non-paid rent.
Essential that the UK’s commercial property market attracts investment
The UK’s commercial property market has long been highly regarded globally. Our geographical location, legal system and respected market conventions have long appealed to overseas investors. And investment in commercial property must continue to be the case for the sake of the UK’s economy.
Obviously, there will more changes and some may be permanent but above all the reputation of the sector in the UK must stay whole. COVID-19 has had an enormous impact on the commercial property sector. And it is a sector that tends to respond unfavourably to significant uncertainty.
However, there are positive signs for recovery. Opinions in the industry remain divided on just what the changes to commercial office space will bring. Some say that the office sector is effectively dead, while others hail a brand-new beginning. The most likely scenario is somewhere in between.
COVID-19 has inevitably hammered the commercial property sector. And it’s a sector that tends to react strongly to any kind of uncertainty. Looking ahead to a post-vaccination and hopefully zero-COVID future, we will definitely see more changes. Many of these will be on the commercial property tenants’ side as they negotiate the uncertainty of recouping their losses.
Most importantly, the future of the sector will depend largely on Government action for the long-term. Emergency legislation was obviously necessary at the start of the pandemic, and as lockdowns have continued in the UK. But there is now an urgent need for clarity and a long-term support.
Commercial property is always a good choice for investors with an eye on the long-term. The possibility of making quick returns right now is obviously limited. But when retail and hospitality are revived and the commercial office sector settles down into its new normal, there will continue to be encouraging development and investment options. The details and legislation may change, but the UK relies on commercial property to thrive, as it always has before.
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