Before Easter, I wrote an article about the perfect storm facing Commercial Real Estate (CRE). Well, it seems the first droplets of raining are beginning to fall. Recently Barclays and WPP announced that flexible working will be the new normal and suggested that large offices were a thing of the past. Even Radio 4’s PM program (Weds 29th April, 5:28 to 5:37pm) spent nearly 10 minutes discussing the matter. With the lockdown looking like it will be extended until June, the weeks have become months, which means incomes – or rather lack of – from rents will now have an even greater impact on the financial performance of the CRE sector. No wonder some investors are already shorting the CRE market. Meantime the Perfect Storm gathers momentum and looks like being even stronger and longer than it did at the start of the month.
Just as a rainy day is an opportunity for umbrella sellers, this situation shouldn’t be seen as all doom and gloom. If everybody tries to follow their own independent survival strategy and actions, it sure will be. The successful way through this is the recognition that CRE is a zero-sum game – for example, CRE’s income is a retailer’s expense – then there is a way to make this situation work. Longer-term, CRE companies will need to work with their tenants to understand how to modify their portfolios to better satisfy the future requirements of the new normal, for example, more frequent cleaning schedules, greater social distancing or reintroduction of locker rooms to ensure a clean, controlled workspace. Sure, it may mean that everyone gets half a loaf, however, this is significantly better, far less painful and ultimately will provide a quicker recovery than the alternatives.
Connect with Mark Sweeney (Director of Professional Services)