Captain’s Blog – COVID-19

COVID-19 and its impact on the property market

COVID-19 has affected the majority of the world’s population and is unlike anything we have seen in recent times in terms of its economic impact. Around 70% of people world-wide have been in lockdown to some extent and this has severely curtailed economic activity. Although stock markets on both sides of the Atlantic have bounced back somewhat from record lows in April – from 4,900 to 6,200 in the case of the FTS 100 – they are still some 15% off the levels seen even six months ago.

The longer term impact on the property market is perhaps even more marked, with a structural shift in demand from tenants and investors away from retail and towards logistics as more and more of us adapt to online retailing. This “clicks and mortar” phenomenon is not new but it has been supercharged by the lockdown which has seen most non-essential retail outlets close and most essential ones remain open but subject to queuing and other restrictions. This is likely to continue at least until a vaccine is found. Some observers however feel that social patterns have changed permanently and that many shops will either never re-open or will do so in a radically different form. The change in outlook for pubs, bars and restaurants is even more profound as social distancing becomes the new normal.

The future for offices is more difficult to predict. Many service providers have been working from home, some very successfully and reports abound of increased productivity, better work life balances and the benefits of seeing more of one’s family. No-one it seems is missing the commute which is unsurprising and most have adapted seamlessly to technology and remote working which is perhaps more surprising. The potential upshot is that many firms will in the future allow or even encourage staff to work from home for at least part of the week. Twitter has gone a stage further in saying that all staff can work from home full time from now on. The likely outcome is that density of staff within offices will reduce to reflect social distancing requirements (or demands from staff) which would in the ordinary course of events increase demand for space but allied to that the offer from employers (or desire from staff) to work from home will reduce the need for space. From a property investor/developer point of view it is hoped that this will balance out so that there is no reduced demand for space. That however seems fanciful and it is our view that overall the demand for new office space will reduce and the space that is in demand will look markedly different from todays offering. Communal kitchens, break-out spaces and even bars have become de-rigueur in modern offices none of which are COVID compliant in their current form. As the boss of Barclays said the days of 7,000 people working in the same skyscraper would appear to be at an end.

Time will tell how the world in general and the property market in particular adapts and whether there will be a new normal or whether we all forget just as we did the Hong Kong flu pandemic of 1968 which lest we forget killed twice as many in the UK alone than the current 40,000 death toll and an estimated 1 – 2 MILLION world-wide.