How Has COVID-19 Affected Commercial Property in London?
The coronavirus pandemic continues to affect global markets amid slowed business activity and travel restrictions. This has impacted on the commercial property market with several businesses going out of operation while others have been forced to lay off workers amid reduced cash flows. As such, the office space market has been forced to adjust to these changes with some adopting modern office services to supplement their income.
COVID-19 also arrived shortly after the UK had separated from the EU. This separation had already started to affect the London housing market making it relatively tricky to the UK commercial property market players. Several businesses had already planned to shift their operations. This would have affected office space prices. However, the coronavirus pandemic has disrupted their plans to shift headquarters to places like Frankfurt in Germany. The COVID-19 pandemic has created a bottleneck, which is making life even harder for SMEs in the city.
Theoretically, London is the business capital of the world. Its location places it in a position to trade with both the Asian and American markets at some point during the day. This is why many businesses try to establish some presence in the capital. As such, the property market in London is one of the priciest, which means several businesses are likely to struggle to operate at optimal conditions during an economic crisis.
Nonetheless, some of the commercial property companies in the city have modernized their operations to try to cut costs for businesses. Some London office agency platforms like Prime Office Space now appear to be focusing more on shared office spaces, which essentially provide SME’s and startups with flexible options. Businesses experiencing unpredictable revenue flows due to COVID-19 can easily adjust the amount of space to occupy from one month to the next with the rest of the staff working from home. This is something that is unlikely under leasehold commercial property.
Commercial property owners in the UK’s capital have also embraced a softer stance by allowing struggling businesses ample time to meet rental requirements after the due date. Others have leveraged government stimulus package for SMEs to apply for government funding, which has kept them afloat in these troubling times. This has been dedicated to primarily cover costs relating to employee salaries and rent. Keeping the purchasing power of the residents intact is an important step in ensuring that businesses can resume full operations post-COVID-19.
The UK government announced a £330 billion stimulus package to support the UK economy. However, even with this support provided, several businesses still found themselves forced to close or declare redundant workforce. However, with the reopening of the economy, many businesses have resumed operations albeit with lower than normal revenue streams. The least to suffer from the pandemic are consumer defensive companies that offer essential products and services like foodstuffs, healthcare, and utilities.
In March this year, the London house price index had risen to hit monthly highs of 120 basis points. That last time the index reached that level was in 2018. House prices continued to rise significantly during the lockdown with London adding about 2% in Q2. This paints a contradicting picture to expectations given prevailing circumstances. However, it is important to note that the house price index is based mainly on selling prices and not office rental price.
Since a mortgage is a long-term debt commitment, COVID-19 did not lower the selling price of houses. The low government interest rate also made it easier to acquire debt, which was further boosted by the stimulus package. As such, new property buyers were forced to pay a higher fee despite the COVID-19 pandemic.
In summary, London’s commercial property market has not been spared by the adverse effects of COVID-19. While pricing measurements like the house price index ave continued to rise, businesses have suffered and been forced to adapt. Property market players have also embraced modern commercial office trends to offer flexible solutions to businesses.
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