Two trends for the post-covid commercial property market

2020 has been an extraordinary year for the commercial property market. Following a 50-year career including four major recessions, I’ve never seen anything like this.

The Government announcement to extend the moratorium, where landlords cannot force tenants to pay rent from March until December of this year, is one example. If the moratorium is eventually lifted, tenants who have withheld rent will face a one-year rent demand, on top of furloughing of staff being lifted and deferred VAT payments.

Covid-19 is destined to shake up the sector as never seen before, although two changes caused by the pandemic are likely to be seismic:

A radical change to planning

Use Classes Order was changed on September 1st with the intention of reversing the commercial market decline throughout the UK. Retail premises, restaurants and gyms can interchange and even be dual use, negating the power of local planners and resulting in a seismic change to the high street. 

With operators having flexibility like never before we anticipate that many businesses will explore these options, working with landlords to open restrictive user clauses, in existing leases. Many retail operators are on the verge of collapse, and therefore the opening of restrictions on the Use Classes Order is good news.

Whilst tenants may welcome this flexibility, landlords are reviewing their lease structures and what ranges of flexibility they will permit. Rents will inevitably decline radically, especially where 30% of office workers are likely to continue to work from home, even when the pandemic has left our shores.

A changing demand for offices

We have experienced our busiest August agency market on record, working with companies of all sizes reviewing office requirements. What we are seeing is a significant change in demand for space, and whilst I do not believe that demand for offices will disappear, the way that companies envisage their needs has transformed almost overnight.

Many tenants are looking to decentralise, involving massive cost savings – part of the work from home process. Our research of central London office tenants demonstrates that over 50% of occupiers expect a 30% decline in office attendance, whether a result of working from home or redundancies. This will enable them to downsize their office spaces, even with the need to implement social distancing measures. As a result of this, I can see a scenario where there is a 20% - 30% fall in rents for offices.

Furthermore, companies are looking to move to their own self-contained space, where they can control their own environment. Flexible leases are high on the agenda, and there is a move away from co-working and serviced offices. 

A post Covid-19 future

Collapse across the board is inevitable, and liquidations and CVA’s of household names will continue. The future looks anything but bright, but it will be very different. 

An article by Anthony Lorenz, founder of Lorenz Consultancy, a boutique commercial property consultancy.