Q&A with Mike Collins Mortgage, independent financial advisor
We asked financial consultant Mike Collins all about the challenges still faced by the commercial property sector following the Covid pandemic and whether we can expect a bounce back in 2023.
Which sector of commercial property has been most affected by the Covid pandemic? Mike: Working habits have been a major change. When the lockdowns were imposed and it wasn’t deemed safe to work in offices, many of them shut down for months on end leaving some employers still having to stump up for rental costs and trying to negotiate ending leases early.
Many businesses have chosen to adopt a hybrid and even a totally remote approach of working and so there has been a reduced need for office space. I think most people now have established a routine in working from home but for some creative industries where collaborative work is imperative, it’s definitely easier to meet in an environment where ideas can freely bounce around.
What I do think we may see is more demand for flexible workspaces where people can rent a desk as they please as this would suit those who aren’t used too homeworking and prefer to get out of home to work without having the permanent desk commitment.
What about retail? What do you see happening there?
Mike: With non-essential shops forced to close during lockdown, it became clear that no landlords would be seeking extra or larger premises. Major retailers such as Debenhams , Oasis and Top Shop closed their doors forever.
Demand for new space is still low in retail as people have become used to online shopping – and this created a surge in demand for warehouse space – with millions more sq. ft needed to accommodate this. And of course, supply chains everywhere are affected creating a need for more warehouse space. So, it’s a great time to be a landlord right now if you can grab one!
What is affecting the commercial property sector now?
Mike: Businesses are dealing with the costs of debt, inflation and ongoing structural shifts precipitated by the pandemic. Soaring energy prices will be a major concern – and to think some smaller businesses have managed to stay afloat during the pandemic and are now riddled with energy bills that are almost double what they were paying pre-Covid.
And of course, stricter financial conditions tend to have a direct impact on commercial property prices by making it more expensive for investors to finance new deals or refinance existing loans. This means an overall lower investment in the sector. These conditions also slow down economic activity, reducing demand for places like shops and restaurants.
How can commercial property owners prepare for 2023?
Mike: Generally, businesses need to be prepared to negotiate. Compromise on more flexible terms, especially with landlords. If landlords can provide relief by providing shorter lease terms that would be appreciated by a lot of companies. Those who find themselves with redundant offices could apply for a change of use to investment opportunities such as gyms or food retailers.
For the most part, hospitality and leisure have survived the pandemic and I’d expect the hotel industry expected to return to pre-pandemic levels by the end of 2022 especially with travel abroad back on the agenda.
Next April is going to mean a lot of extra cost for some commercial landlords as it’s from then that they are at risk of penalties for non-compliance. Now the threat of fines may encourage landlords to upgrade buildings to meet the minimum energy efficiency standards required. They should be addressing making their properties energy efficient so that they won’t face huge costs in April.
Equally, landlords could face devaluation of properties in their portfolios if they need to improve their stock and tenants could request to pay less rent if a property’s energy efficiency is substandard.