Covid-19 has severely impaired tenants’ ability to pay rent. It also raises questions about where shopping, work or leisure will happen once the crisis abates
week of March was a heartbreaking one for Will Beckett. The boss of Hawksmoor, a chain of steakhouses that employs 700 workers in Britain, had been days away from opening his first New York outpost. Instead government-imposed lockdowns forced him to close all his restaurants down. The City types that usually queue for its sizzling cuts were forced to go without. So too were Mr Beckett’s landlords, after he told them he could not afford to pay rent for the second quarter.
The infatuation with commercial property began in earnest after the global financial crisis of 2007-09. Interest rates were cut to almost zero across much of the rich world, making it harder to generate the safe cash flows that pension funds and insurers need to meet future liabilities.
Covid-19 jolts investors out of their complacency in two ways. First, swarms of tenants have simply stopped paying rent as the economy has reeled; the extent to which losses will persist is especially uncertain. Second, it may speed up long-term shifts within the sector: from shops, say, towards warehouses. Some types of property could become less bankable.
As activity resumes, properties are adapting, at some capital expense. Hotels are implementing contactless check-in, automatic doors and new cleaning routines. Offices are introducing temperature checks and reducing pinch points at lifts. Brian Kingston, who runs the property arm of Brookfield, a private-equity firm, says it is reorganising mall layouts and car parks to make kerbside pickup easier.
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