Philip Otvos participates in the IR Global Real Estate Virtual Series – Real Estate Recovery: Bouncing back after the global pandemic
FOREWORD BY EDITOR, ANDREW CHILVERS
As the Covid-19 pandemic continues to disrupt businesses across the world, one of the biggest debates being played out is the future of property – in the city centres and suburbs; in office space, commercial and residential.
Just what will the world of real estate look like at the end of 2021? Will cities return to normal, and office space and retail malls remain the same, or will they be changed forever?
Most legal and financial advisors in the real estate sector agree there is an element of crystal ball gazing, but likewise there are now clear signs of how things might just look in the near future.
Helping clients in the new normal: How are legal advisors assisting clients during the ongoing pandemic lockdowns? How important has the Counsel role become?
Clearly, when you’re dealing with distressed clients, you need to be mindful and empathetic. Whilst it’s been an unprecedented last 12 months, we have weathered recessions and other challenges in the past – admittedly not as big as that presented by Covid-19.
The point is that dealing with clients in distress is not a new phenomenon. Good practice dictates that as solicitors we aim to develop a professional relationship with our clients that extends beyond undertaking the transactional work and to becoming a trusted advisor. If we can achieve that, then we are better placed to provide support and help to our clients at this time.
Sound of the suburbs. As more people and businesses flee city centres for the suburbs, will real estate investors look more closely at long-term suburban development projects?
I disagree with the premise of the question as I don’t think it is correct to say that people and businesses have permanently fled the city centres. It’s premature to conclude with confidence what the long-term consequences to our city centres will be. What has happened is that as a result of lockdown restrictions imposed by Governments, individuals have had to flee to the suburbs and work from home. This is a temporary situation imposed by Governments to drive down the infection rate.
As to the longer term consequences, I expect city centres will continue to be very important and relevant to businesses, visitors and to the economy. They benefit from having the infrastructure to support businesses and offer cultural amenities which suburbs cannot compete with. Developments in the suburbs present additional challenges due to those areas being predominantly residential and, as a result, planning requirements are typically more stringent than in the city centres. I also expect that certain sectors will need to remain in the city centre. In London, for example, I expect financial services and insurance will continue to be based in the City or Canary Wharf.
That is not to say that there won’t be permanent changes as a consequence of the pandemic that will impact on real estate. We now know that we can work efficiently from home. As a result, I expect that more employees will want more flexible working arrangements and that businesses will ultimately need to embrace that. So, businesses may not require office space at current levels. They may decide to operate from smaller offices, which will be a significant cost saving to the business. On the flip side of the same coin, landlords may find that they have more vacancies and ultimately may need to consider repurposing some of the space in their buildings no longer required as offices.
“The mall stores are done.” How long will it take for shopping malls to recover from Covid-19 in your jurisdiction?
In the UK a key issue holding back shopping centres from bouncing back is the uncertainty as to whether some very important Covid-related Government interventions will come to an end at the end of March this year or whether they will be extended. For example, the business rates holiday for the retail, hospitality and leisure sector and the moratorium, which prevents a landlord from bringing a lease to an end as a result of its tenant failing to pay the rent. In the absence of certainty, businesses cannot confidently plan. Scotland has just announced that it will extend the business rates holiday for another 12 months and I expect the England Government will follow. We will know by the time you read this as the Budget will be delivered on 3rd March.
There have been a number of high-profile retail failures in the UK. The Arcadia Group, House of Fraser and Debenhams have all gone from the High Street. As a consequence, up and down the country, there will be a large number of vacant units in shopping centres. Add to that, the fact that online retail has marched ahead during the lockdown when bricks and mortar retail has been unable to trade. The trend away from bricks and mortar to online was already established but it has certainly been accelerated as a result of the pandemic. The challenge to the landlords of these shopping centres is how to attract tenants and consumers to visit their buildings and then to stay for a sufficient period of time to spend their money there. The question they will need to address is what can a shopping centre offer that “Amazon” cannot? The answer will I expect involve a creative approach to repurposing vacant space, replacing some of the retail with more leisure and food and beverage, thereby presenting a more varied offering and an experience to customers.