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CHANGING SPACE

THERE HAS BEEN A PALPABLE MARKET SHIFT IN THE PROPERTY MARKET SINCE COVID-19 WAS FIRST EXPERIENCED IN IRELAND EARLIER THIS YEAR, AND THE CHANGE CONTINUES.

The sectors of the market have been impacted in different ways and it is interesting to see the resilience of ‘defensive’ assets to date in the residential and industrial sectors. The impact of psychology in terms of herd behaviour and market sentiment is an important variable as we try to navigate the likely future projections and performance of the property sub-sectors. The varying impacts on households are also key factors, with some experiencing minimal change and others devastated by job losses and income reductions, not to mention health impacts on family members. Until a vaccine is created and utilised, we can expect ongoing disruptive impacts on the market. The pandemic will particularly affect businesses that rely on gatherings of people such as music venues, theatres, restaurants, retail and co-working spaces. While there are certainly negative impacts, there are also opportunities to rethink how we design and utilise our built environment. It is rare that an event occurs that so substantially shifts the market paradigm that it offers a large-scale 22 SURVEYORS JOURNAL Volume 10, Issue 3, Autumn 2020 rethink on what we consider the fundamentals of that market. How we occupy buildings, the preferred locations of different asset types, the way we travel, the way we work and interact, all of these are shifting and we have a unique opportunity to shape our cities and towns in a different (and better) direction. Claire Solon MD, Greystar Ireland FEATURE Emma Leonard Associate Director, Sigma Retail Partners “BETWEEN MAY AND JULY, THE NUMBER OF RENTAL ADS IN DUBLIN WAS APPROXIMATELY 50% HIGHER THAN THE SAME PERIOD IN 2019.

Residential House prices have remained fairly stable, though with upcoming changes in pandemic unemployment payments, mortgage restrictions and continuing disruption to employment, there will likely be a decline in pricing. In terms of supply, the lockdown and reduced efficiencies on site due to social distancing and supply line have had an impact on projected completions this year. While demand projections vary between sources, supply in 2020 will be well short of the units required. House completions fell by approximately one-third in Q2 this year to just over 3,000 units completed, with Dublin experiencing the largest reduction.

Rental growth has increased year on year nationally, though there is evidence of rental reductions in certain locations. This seems to have been exacerbated by short-term lets in the city centres, particularly Dublin, being converted to private residential stock earlier in the year. Between May and July, the number of rental ads in Dublin was approximately 50% higher than the same period in 2019. The recent SCSI report on the residential property market showed that 8% of residential tenancies did not pay their rent as a result of the pandemic. This is expected to worsen. It should be noted that only one-third of tenants who did not pay provided “satisfactory evidence for the inability to pay”, which should mean some recouping of rents owed.

Retail The initial lockdown measures had a significant negative impact on all operating in the retail space, with the exception of essential retailers, who saw turnover increase. Some retailers that were required to close faced the prospect of trading solely online. Central Statistics Office figures show that total retail sales generated online increased from 4.5% in March to 15.3% in April, but as shops reopened, this decreased back to 4.5% in July. By way of comparison, in July 2019, this share was 3.4%. City centre retailers without the footfall associated with workers, tourists and students, are performing lower than their suburban or regional stores. Expenditure linked to home and working from home is strong, but products linked to socialising and occasions continue to struggle. The leisure, events and pub sectors are still severely impacted. Outdoor space has increased in desirability and value in delivering additional seating areas, with a repurposing of public realm in cities and towns. This can be a positive impact of the pandemic. While there have been some well-reported failures, these were typically retailers facing challenges pre Covid-19. Retailers who have successfully embraced the ‘Phygital’ environment, which recognises the physical store alongside digital platforms, will continue to be successful. Those who invest in omni-channel methods to supplement their physical store will emerge stronger.

Industrial

Despite many industrial and manufacturing companies facing difficult times due to supply chain disruption, cost escalation and workforce dislocation, the overall sector has proved relatively resilient. There are a number of ongoing speculative developments, with units under construction at Greenogue Business Park, and Aerodrome Business Park due to commence later this year. The demand for warehouse space to allow online distribution of goods has increased. It is worth noting that the threat of Brexit on the export and manufacturing industry still looms. Investment opportunities can be derived from anticipating future occupier requirements, customer strategies, and enabling supply chain resilience. Office The Covid-19-imposed lockdown forced office workers to grapple with working remotely. Post lockdown, remote working still features heavily with a number of large companies announcing measures to work remotely until at least Q1 2021. With many workers able to work from home, the necessity for space is not a key determinant in completing transactions. Of the offices that have reopened, the majority have reduced the number of workers on site. The requirement for technologically advanced and ‘smart’ buildings will likely be heightened for both business reasons but also the management of employee health and well-being. While research is showing that there is likely to be an element of remote working post Covid-19, historically businesses have fared better with co-workers coming together and benefitting from knowledge working beside each other. There is also the social and human side to the creation and maintenance of a supportive and constructive working environment.

So what does the future hold? Development of new property is likely to be reduced in the short term due to risks regarding cashflow projections, and the cost of development finance. Not every business will survive, and landlords and tenants need to work together and find solutions. Improved flexibility in lease terms and covenants, turnover- and sustainable-related rent, monthly payments rather than quarterly to assist cashflow, conditional break options, and the insertion of pandemic clauses are potential changes in the way we formulate agreements. The ability to deal with change has always been a key aspect of a successful business and this has been highlighted by recent events. Businesses need to pivot in reaction to the underlying fundamentals within their own market and make organisational changes efficiently. There is an opportunity to embrace and use technology. While Covid-19 will bring about new ways to use space, fundamentally, we are happier socialising and working alongside each other.