Routes out of the COVID-19 crisis: directions of travel for the commercial property industry

Commercial landlords have been left to their own devices to find a route out of the coronavirus crisis, but the bold and creative solutions we're seeing might just set a new course for the whole industry.

Lockdown hit the UK within days of the March Quarter Day and many landlords – neutered by the government's moratorium on forfeiture and anticipating dramatic insolvency reform – moved quickly to collaborate with their tenants and mitigate the damage.

This swift response makes sense; real estate is, after all, a business built on an inherently symbiotic relationship. In many cases, quarterly rental payments became monthly ones (to ease cash flows) or were even postponed altogether. A quid pro quo for landlords absorbing the immediate impact often involved negotiating extensions to lease terms – making that shared future even more relevant.

Three months on however, and while it's apparent the virus isn't going anywhere fast, many property owners are starting to think further ahead – working with occupiers to ensure the industry doesn't just survive, but actually thrives. Our upcoming webinar on the impact of coronavirus on the real estate sector considers three major directions of travel:

Risk

Across many sectors, the virus has had devastating effects on tenants' underlying businesses and is raising real questions on risk-sharing in landlord/tenant relationships. After all, full repairing and insuring (FRI) leases are investment vehicles designed to provide landlords with a clear rental stream on top of the running costs involved in owning, managing and insuring a property itself. 

But tenants who have found themselves especially vulnerable in recent months are asking to share the burden. They want turnover rents or extraordinary rental concessions to reoccur if (or when) the next pandemic emerges. We're a way from genuinely shifting that FRI balance, but with many so-called "COVID clauses", it does seem that the sharper edges of risk allocation are beginning to blur. 

Flexibility

The provision and consumption of real estate is undeniably changing, but the crisis has placed a new value on flexibility. Practically, tenants are looking for more freedoms to share space – installing concessions, for example – or even change use as their business models adapt to new demands. From a landlord perspective, the concept of estate management is also flexing: armed with new and engaging proptech, they are selling more than square footage; they are creating new income streams and brand loyalty. 

Sustainability 

Given the country's ambitious environmental goals, responsible landlords were already thinking seriously about their ESG impact. Sustainability is more than a buzz word, and those businesses genuinely committed to improving the credentials of their portfolios are able to use any COVID-19 related concessions to build in the kind of lease amendments needed to properly future-proof their assets and, ultimately, the country.