QuoinStone Outlook
April 2022

April Outlook – post MIPIM

No sooner than the bars and restaurants of Cannes felt a buzz again after a long Covid induced slumber, we are now facing a more troubling challenge ahead with the advent of war in Europe. So how do we deal with the continued headwinds? 
 

It is true that certain sectors (logistics, last mile etc) have not stopped throughout the pandemic although many owners within the retail, leisure and some office markets will now be anticipating a tough stretch ahead. These owners will be making plans to ensure they are providing the best possible product in a time of ever-growing competition for tenants.
 

How do we as property owners and asset managers ensure that it is our buildings that new occupiers are attracted to? Business owners now have to consider the post-covid demands of employees and ensure that they are providing staff with optimum working conditions. This, alongside the ongoing conundrum of WFH versus back to the office. Many occupiers simply still do not know how much space they will need in 6 months to a year, let alone over a lease term of 5-10 years.
 

With many businesses downsizing and vacancy rates in the ‘grey space’ arena steadily rising we must ensure that we provide the best possible space and service and combine this with a high degree of flexibility in lease structures. With this comes the cost of providing this salubrious accommodation in the form of Cat B+ fitout. Without rental growth to support the added capex on top of rising costs of labour and materials, net income levels are set for a fall.
 

But maybe it’s not all bad news. The pandemic has seen a surge in the growth of many small, nimble and predominantly tech focussed businesses and this growth continues with businesses keen to expand into new space quickly. To meet this demand, building owners must be agile themselves. Provide high quality, plug and play space quickly and you will stay ahead of this fast-changing game.

Business Rates – What next?

The scale of economic damage from the global pandemic has put significant pressure on landlords. It has accelerated the need for change, and with that, has put some landlords on the wrong side of a fundamental shift in the market.

During the pandemic, when businesses were forced to shut, the government recognised the need to take action and business rates relief for tenants was one of the first strategies they turned towards. It was then up to landlords to take the hit as struggling tenants looked to them for rent relief. Even with the government stepping in and landlords doing their bit, the end result in many cases was for businesses to go under resulting in a steep rise in vacancy rates.

This combined with the growing shift towards remote working, causing businesses to reassess their requirements for office space, has led to increased vacancies across the majority of sectors. With this added pressure and with little to no support from the government, it is now more important than ever for property owners to assess their vacant Business Rates liability as we look towards a post-pandemic future.

Whilst the occupational market recovered, costs can be mitigated and a focus on this alongside a refreshed reletting strategy can go a long way to reducing the losses in net returns