COVID-19: Impacts on the real estate and construction sectors
14 May 2020
COVID-19 has hit countries extremely hard, and many of the aftershocks may only be felt over the next 6 – 12 months. With businesses in South Africa scrambling to institute remote working for their staff where they can, or shutting down entirely for the lockdown period, commentators are forecasting significantly lower growth, a recession or even a depression.
One sector that may see longer-term effects of the devastating coronavirus is real estate and construction. Already, there are immediate sectoral impacts, such as on leisure, tourism and retail, which are being hit hard and fast.
The office sector is one where we expect the effects to show a lag, as companies that have suddenly been forced to work remotely start to take stock of the medium- to longer term impacts of this on the office space they rent or own. This may push companies to ask themselves whether they need such a large building when the COVID-19 lockdown proved that staff can in fact work remotely. Although many businesses are locked into long-term leases, which may be difficult to re-negotiate in the short to medium term, the question of office downsizing will likely be considered when leases are up for renewal.
Over the next few months, companies are likely to negotiate for deferred rental payments or payment holidays, as many businesses may experience pressure on cash flow, and landlords may need to be creative on how this is managed.
Finally, we believe this pandemic will force businesses to think carefully about their workforces and space requirements. Companies may consider that flexibility and agility is more important than one workforce being together in the same space. Tenants may want to be able to exit a lease far more nimbly than they are able to currently.
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