September Themes

With new lockdown measures taking effect this week, you can't blame clients for feeling that the economic recovery we have seen over the last few months will come to a grinding halt.

We are however seeing signs of optimism restoring to the markets (no doubt helped by the end for most of taking on a second job of home schooling as schools re-open). Here is what we are hearing and seeing in the property world:

• Owners of commercial space are reporting a strong recovery in rent collection rates (just look at recent results published by REITs) with a large proportion of non-retail tenants who missed rental payments in Q2/Q3 having now caught up.
• Retail is still suffering but improving as shoppers return. Shopping centres appear to be taking a bigger hit; anchor tenants which drive footfall are withdrawing leaving smaller tenants with fewer customers coming through their doors. My local John Lewis in the Intu Centre in Watford (which is close to my heart as it is where I had my first job!) recently closed even though it was paying no rent! If you are a tenant in a shopping centre, my colleague Dennis Ko's article here is a must read.
• Build to rent seems to be continuing its upwards trajectory. Since March, we have been involved in over £100m of financing activity related to build to rent; there is clearly appetite in the market for this asset class.
• Developers are looking long term; Covid is unlikely to be around in 12 to 18 months (or if it is, one hopes there will be a vaccine) so developing an asset now for completion in late 2021/2022 looks a good bet. Since lockdown started, we have completed over £150m of development and bridge financings (£50m of which related to one hotel(!) development from a mainstream bank).
• There is still strong interest in UK real estate from overseas buyers. Political risk (such as in Hong Kong) is pulling buyers in their droves to the UK.

The fly in the ointment is clearly the uncertainty over the future of office space. I've heard numerous differing views across the spectrum on this topic. It's clear that how we work will change forever but I don't think this is the end of offices. As one client put it: "Offices are still vital. Remote work has its place, but offices are much too valuable in terms of communication, collaboration and productivity to ignore".

And besides, spending too much time at home might not be a good thing. Divorces are on the up as my colleague Katie O'Callaghan comments on here, so striking the right balance will be key!