As we all know, the Covid-19 pandemic has had a huge effect on the majority of businesses during the period of lockdown imposed by the UK Government, and will continue to do so whilst the lockdown is gradually eased and beyond. Even many businesses that saw little effect initially are beginning to see a slow down in orders as the effects work their way through the country’s business supply chains and the like.
Many businesses have operated away from their traditional places of business, some easily, some less so, and this is likely to have prompted many to consider their current and future requirements in relation to the business premise in a new light.
So, what might be the effect of the pandemic on the commercial property market in the months to come?
The pandemic and the requirement for many people to work at home has opened the eyes of many business managers to the effectiveness of their staff working at home, and a large number of sceptics will have been persuaded that it can work much better than they had feared. The time and cost savings of not having to commute to the office have been very welcome to many people.
However, many workers are missing the camaraderie, ease of discussion and exchange of ideas found in the office and there will be some who, for various reasons (children at home, shared living areas for example) find working at home difficult.
In the short term, the tendency to try and cram ever more people into smaller spaces may have to take a step back in light of Government guidance about social distancing. Employers may reconfigure offices into less dense layouts, combining that with more flexible working to have fewer of their staff in the office at any one time, more or less maintaining their current space requirements.
However, it seems likely that many will, in the longer term, look to encourage more of their people to work at home more of the time, utilising hot desking to keep their office space flexible. This will inevitably reduce the requirement for offices, particularly in areas where such space is very expensive. Even in lower rent areas, few CEOs are going to pass up the chance to save some money on office space, if they are confident that it is not needed.
It seems likely that there will be much less change in the industrial property markets. Demand has been high, and premises difficult to find, for some time in many areas of the country. Apart from businesses directly affected by Covid-19 restrictions, many industrial businesses have continued as normal and demand has remained reasonable strong through the lockdown.
There seems little likelihood that working at home is going to be practicable for many industrial operators, so when the economy generally recovers, they are likely to get back to normal working as soon as they can, and as a result, the market is unlikely to alter much.
The retail property market has been struggling for several years, with demand falling and an increased vacancy rate in many areas. Covid-19 has not helped and it seems likely that there will be a spike in the number of vacancies in the short term.
Whilst essential retailers (supermarkets, food stores, chemists and the like) have traded throughout, many others have not been able to do so and, weakened in many cases by their battle with online retailers, many will struggle. Even those retail sectors that have been thriving recently (personal services such as hairdressers, and casual eating outlets) have suffered badly due to the lockdown and with social distancing in place may take some time to recover.
The loss of office workers in town centres (whether on a temporary or permanent basis) will have an effect on many retailers, so to that extent, the trend noted above in relation to offices may further hit retail.
It is difficult to be very optimistic about the future for the retail market, but it may be that in the same way as many traditional shops have been replaced by those personal services/café uses, other uses as yet untested will come into the retail market as time goes on, to add vibrancy to high streets. Some local authorities are attempting to encourage more residential conversions in town centres, which may go some way to counteracting the loss of office workers.
Leisure has been particularly badly hit in the lockdown, being (almost by definition) not essential and frequently relying on contract to close to be acceptable for social distancing. Whilst this is undeniably having a severe effect on those businesses, and re-opening is not necessarily easy with the restrictions still in place, it seems unlikely that the demand for those types of businesses will not return in due course, so in the medium term, demand for premises in this sector seems likely to return.
Of course, nobody can know for sure what the effect of the Covid-19 epidemic will have on the property market, not least because we don’t yet know how it will pan out, whether there will be a second ‘spike’ or a further lockdown, or whether there will be other novel government action. However, the thoughts above are based on the trends we can already see occurring in our businesses, towns and cities, in the light of the pandemic to date.