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Watch Your Step: The Property Market's Avoidable Post-Pandemic Mistakes, Listed

Watch Your Step: The Property Market's Avoidable Post-Pandemic Mistakes, Listed

It is all too easy to take a tumble when the terrain is uncertain. With a pandemic in retreat in some areas but accelerating in others, an economy struggling and uncertainty everywhere, now is not the time to put a foot wrong.

With this thought in mind Bisnow asked a panel of property industry thinkers to point to the pitfalls. 

Mind where you step.

Trip Hazard #1: Underestimating The Influence Of Habit Formation

Aviva Investors UK Director of Real Assets Research Chris Urwin said the fund manager's working assumption is that the world returns to normal fairly soon. But what if it doesn’t?

“We’re asking a lot of questions about the relative attractiveness of out-of-town offices and city centre offices, and the fact is that remote working means we’re all getting by somehow," Urwin said. "But that’s all short-term. From an investor's point of view it makes sense to think of the world after coronavirus.

“The uncertainty we're trying to get our head around is the level of normalisation we can expect in the short-term, and how long till the pandemic is over. It may be some time away, meaning we spend more time in this upside down world. And if it's years then the changes in behaviour we’ve seen will be habit forming.” 

Trip Hazard #2: Forgetting Who Creates Value

Ian Houston is partner at New York, London and Sydney asset manager St Bride's, and for him the danger is to forget what makes value in real estate.

“We spent the last three months talking to our tenants because your investment is only as good as your tenants,” Houston said.

“Ours are a very mixed bunch, from those that are still doing well, to cafés who are having a tougher time, and if landlords assume life for tenants will suddenly turn back on because the government says lockdown is over, then they would be seriously misinterpreting things. The short-term is going to involve pain. We have to keep our tenants in a position where they can be income-producing.”

Coronavirus
A coronavirus molecule

Trip Hazard #3: You Know Nothing

You are all doing it. Constantly. And it is wrong. What is the name of this mistake? Making big assumptions.

That is the message from Centre for Cities Policy Officer Simon Jeffrey, who said the property industry and everyone else must escape from their Zoom bubbles and stop relying on anecdote, instead of evidence.

“Yes, there are opportunities for landlords to secure very short-term lettings on flexible terms and yes, big landlords will do all they can to ensure temporary impacts do not turn into permanent changes in the value of their assets," Jeffrey told Bisnow. "But the danger is finding evidence of certainty in all the places we should be finding uncertainty.

“That means some investors are holding back in case there is some new paradigm of productivity out there, that it is going to upturn the workplace apple cart, but if they think that, they do so on the basis of not a lot of evidence. The danger is overcompensating from the rapid transformation to working-from-home and extrapolating, confidently, into the future. Which is dangerous because you need face-to-face contact to build teams in a way that you don’t to maintain teams. And we’ve not tried building teams from scratch online before.”

Trip Hazard #4: You Know Less Than Nothing

What is worse than assuming you know your own future? Assuming you know everyone else’s future. According to Cushman & Wakefield International Partner Charles Dady that is a risk the UK office market is in danger of tumbling into.

“The danger is thinking one size fits all,” Dady said. “The error is thinking there is one response to the last three months, and that this is what the post-pandemic workplace will look like. Because it won’t.

“There will be different solutions for different businesses, and for different industries, and so on. There will be consistent themes like flexibility, but there won’t be one answer. Some occupiers will mix on-demand offices for events with touchdown space for homeworkers who want to get away from the kids, in offices in central locations or offices in out-of-town locations. The landlords who will prosper will be the ones who can cope with this.”

Trip Hazard #5: Failing To Prepare For Disaster

Yes, everyone hopes post-pandemic life will be better, or no worse, than it was before. But what if that assumption is wrong?

Jonathan Goldstein is chief executive of Cain International and a recovered victim of the coronavirus, which perhaps explains why he thinks the property business needs to be a little more alert to the risks.

“Great businesses have been brought to their knees by this pandemic,” Goldstein said. ”What distinguishes 2020 from other downturns like the Great Financial Crisis of the first decade of the century, is that those businesses have been protected by government intervention and forbearance by lenders. And that cannot last, and when it stops we will find unemployment grows and those businesses that have been fatally wounded will die.

“Landlords will try to be flexible. It is a wise landlord who chooses which tenants to forebear with, and which not, and it comes down to knowing your business. Because keeping tenants alive cannot be the right decision forever.”

This is a gloomy lesson to learn, but get it wrong and plenty of property businesses will be flat on their faces.