Property fund managers are standing by their office allocations even as large corporates encourage more employees to permanently adopt remote working after the coronavirus lockdown
UK property fund managers are standing by their office allocations in spite of large corporates pledging to downsize their footprint and encourage more employees to permanently adopt remote working after the coronavirus lockdown.
This month, Lloyds told staff in a memo the bank would likely need “fewer buildings and different types of spaces” after the Covid-19 crisis due to changes it had initiated in the way people work.
It is not the only large UK business to signal disruption for office space demand. In April, Barclays chief executive Jes Staley said the “notion of putting 7,000 people in a building may be a thing of the past”. WPP has also signalled its office capacity will be lower on the other side of the coronavirus.
Over in the US, Twitter announced in May staff would be able to work from home “forever” due to the success of remote working during the lockdown. Employees that ditched pricey San Francisco as a result would have to take a pay cut commensurate with living costs in their new location.
Furthermore, Fitch Ratings has warned of lower demand for city centre offices across Europe, but particularly in “expensive and highly centralised” markets like London.
In 2017, it had estimated suburban shared workspaces would steal 25% market share from central London prime offices over decade. It now expects the coronavirus pandemic could halve the time of such a transition.
Fundcalibre managing director Darius McDermott says property fund managers have indicated to him that rent recollection from office tenants has so far held up. Where there has been stresses in the last quarter, it’s been on retail.
In the near term, office tenants have to ride out their leases, McDermott says. Barclays has got big offices in Canary Wharf. If you’ve got 40 floors and the lease is expiring on the top three floors you could shut those down. But there are contracts and leases in place. That’s also there with retail but the problem with retail is that it could go bust.
That near-term resilience is good news for the Investment Association UK Direct Property sector, in which all funds are currently suspended due to material uncertainty over valuations on more than 20% of portfolios, a clause that still currently applies to offices.
Nevertheless, McDermott describes the office sector as a medium-term trend to watch. “Retail is very much the focus for today, even if the coronavirus has highlighted potential progression in the working from home culture.”
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