27% fall in office rentals expected by the end of 2020

27% fall in office rentals expected by the end of 2020

London’s West End has suffered the lowest recorded leasing activity level in April 2020, with just 35,481 sq ft being taken up by new leases. In the first four months of the year, commercial leasing was found to be 59% down on the same 4-month period in 2019, according to consultancy Savills. Although results have improved in early May as restrictions have eased, the question remains as to what the long-term impact of the coronavirus lockdown will be.

Predictions made by RBC say that 2020 will result in a 27% fall in office rent for West End and rise 8% in the next year. It remains to be seen, however, if the new ways of working that businesses have adapted to will change the office working environment forever. Or indeed, if the second wave of quarantine hits, how a second knock to the economy might impact both business and commercial property owners.

Many companies have already adapted to new ways of working in which employees stay at home and conduct their meetings virtually. A culture change that has led many business owners to consider reducing their reliance on office space, and will instead opt for moving the office to smaller, less crowded buildings, cutting costs and exposure to potential future outbreak situations. Jes Staley of Barclays comments:

“The notion of putting 7,000 people in a building may be a thing of the past,”.

Another indication that companies are finding the current climate challenging is the decline in regular rent payments. Taking into account the same period last year, the emergence of commercial payment problems as provided by Landsec is clearly visible.

Second-wave, unjustified fear or inevitable scenario?

While the whole world and Britain are slowly easing lockdown measures, the fear of a repeat of the pandemic in the 3rd quarter justifiably grows in all of us, especially since the economic consequences have yet to be fully understood. How severe a recession will follow only a few can predict with certainty. The most significant surprise factor lies precisely in not knowing whether the Covid-19 pandemic wave will have resurgence or not.

Buoyant words from the Chancellor regarding the UK’s recovery

Despite a number of measures taken by the government to help entrepreneurs overcome the situation and save as many jobs as possible, layoffs are happening in many sectors, and further announcements of wage cuts are considered inevitable. While it is clear that there is no simple solution the Chancellor of the Exchequer, Rishi Sunak, comments that the UK economy is agile enough to deal with the crisis:

“It won’t be the case that we can simply put the key in the lock, open the door, and step into the world as it was in January. We will develop new measures to grow the economy, to back business, to boost skills, and to help people thrive in the new post-Covid world.”

The outcome

In some areas of Britain, many expect a reduction in house prices and their rents. However, the real impact will be judged by the resilience of the real estate business, their cash reserves, and those who are less burdened with loans and highly leveraged investments. One thing is for sure, there really is a post-Covid world, and it is unlikely that it will ever be the same again.

I set Volition Removals up in 2015 with my business partner Pawel. Our ambition has always been to take the stress out of moving home with a friendly and efficient service. We know its a big day for our customers so we do everything we can to make it go without a hitch.