Real estate companies are being affected in many ways depending on region and asset class, this as the effects of COVID-19 are felt all over the world. Executives are concerned with preserving value and liquidity, agreeing with governmental agency demands, and keeping tenants and visitors secure. Also, tenants may be faced with liquidity pressures that result in deferring or stopping contractual lease payments. Certain subsectors, such as retail, hospitality, and developers will face more instantaneous effects while other subsectors, like multifamily and non traditional owners will likely feel less sudden impact. Longer term, subsectors like office and industrial could be affected by changes in where people work. Furthermore, transaction volumes are expected to lessen in the near term but should pick up during rehabilitation.
The short-term effect for occupiers is proving to be important as their business as usual activities are affected with changes occurring on a daily basis. The immediate shock and realization of the outbreak is now over and the majority of occupiers are in response mode after a short phase of preparation and immediate actions. Occupiers are preparing to go back to their facilities and sending their workforces or employees back to work in several waves.
Countries around the world have applied changes to real estate policy in order to lessen the burden on tenants and in some cases landlords. In parts of Asia, some landlords have offered temporary rental rebates and rent discounts. Meanwhile, some countries, like Singapore, are considering legislation that would protect commercial tenants who cannot pay rent for a period of six months. Here in the Philippines, under Memorandum Circular (MC) 20-31 issued by the Department of Trade and Industry, the lessors shall provide a minimum of 30 day grace period on residential rents without incurring interests, penalties, fees and other charges. For those who want to avail of loans to be able to pay rent make use of Mortgage Calculator’s features like the loan overpayment calculator. Also check out the calculator that estimates mortgage affordability based on income.
Potential Long-term Impact on Real Estate Companies
Before the pandemic, real estate base fundamentals were strong such as leasing activity, strong leverage ratios, and amount of available capital. Looking ahead, real estate executives are trying to understand how fast recovery will happen and what to do with available capital and potential opportunities. Owners and occupiers face inconsistent impacts. Owners with longer term leases may feel less near term impact, depending on tenant liquidity capacity, while occupiers will be focused on liquidity needs and operating effectively with a distant and/or decreased workforce. Near term impacts may be offset by tax relief or other governmental incentives.
What to Do
In an article in the Business Mirror, it says that the Philippines is going to experience the same property sector problems. “Suffering continues for property sector: An international property consulting firm is advising property owners and developers to convert and repurpose their assets to survive.” And “PHL property sector takes hit from Covid-19 pandemic.” Some suggestions for repurposing make sense, like converting vacant mall spaces into micro warehouses.
Real estate leaders will be defined by what they do in managing a crisis – that is respond and succeed. Among the things that they will have to do include prioritizing safety and wellbeing of people and tenants; short-term liquidity needs; remote working considerations, including location and access to information; financial reporting processes and internal controls; and cyber/IT infrastructure challenges.
Operational resilience will be pivotal to recover from the outbreak. Businesses will not go back to the way we knew before the pandemic but will reinvent themselves to be stronger and more resilient, adjusting their operational models to the new normal.