Commercial property’s pandemic peaks and troughs
The commercial property market has been hit hard by the Covid-19 pandemic, but is now beginning to show some important green shoots of recovery.
Whether you`re a Landlord, seller, tenant or a buyer then in the commercial property sector all have been affected.
Amongst the hardest hit have been the retail, hospitality and leisure sectors, where social distancing and mandatory closures have all but caused these sectors to grind to a halt. Some businesses in these sectors may not recover at all.
There are plenty of industries at the other end of the scale which have been less badly affected; some have even found this to be a more profitable time. Some of my clients in the services sectors (where working from home was the norm or was very easily possible) and in wholesale, distribution, material fabrication and some areas of manufacturing have continued to work almost as normal and, in a few cases, actually expand their operations.
As a commercial landlord or tenant, there is no doubt that owning or renting commercial property at the moment is not easy. Landlords have been temporarily prevented from terminating leases, but with the best will in the world, few may want to rush into doing so when the ability returns. This may be especially true of high street or office premises.
In theory, there is an opportunity for collaboration between parties; and we are starting to see that. Landlords are giving tenants a bit of space to come through this period. They are offering rent free periods, lower rents or rent review caps in exchange for a tenant either extending the length of their lease or waiving a break right.
There is some concern amongst tenants, however, that when landlords can start to recover possession of properties from their tenants due to defaults that they will aggressively do so. Landlords know that some tenants have had access to grant funding as a result of the Government’s coronavirus intervention schemes and in turn will be looking to get ‘their slice’. It all depends on the relationship between the parties, the type of property and the sector.
People who have been guarantors to tenants, or former tenants who have guaranteed new tenants’ obligations need to watch out as well – they are not off the hook. The concern is that landlords will start to pursue guarantors or former tenants for the actions of the current tenants. We advise those guarantors to keep their eyes peeled.
The impact of the pandemic has not necessarily been felt across the piste, and there is light at the end of the tunnel. Buying and selling property is difficult, given the uncertainty as to valuations, but the market is seeing activity.
It’s also important to note that other factors outside of the current crisis have not disappeared. Brexit, for one, hasn’t gone away and nor have longstanding issues around skills shortages and access to funding. They may be factors that conspire to take the wind out of a recovery.