Rental Income Hit By Coronavirus Too

Rental Income Hit By Coronavirus Too

almost 4 years ago3 mins

With coronavirus pushing companies to breaking point, they’re now trying a new tactic altogether: refusing to stump up their rent until they get some kind of discount. Or just, y’know, indefinitely. Time to send in the heavies...

⏰ Recap

  • Office space provider WeWork has failed to pay leaseholders rent at some of its 700-plus locations in recent weeks
  • Back in March, UK shopping mall operator Intu only received a third of the payments due from tenants
  • With another 3 million Americans losing their jobs last week, demand for space in offices and malls doesn’t look like it’ll see a resurgence any time soon
  • And given that the UK economy is forecast to shrink by up to 25% this quarter, things aren’t any better in Europe

✍️ Connecting The Dots

With the coronavirus outbreak forcing millions of people to work from home – or out of work entirely – offices and stores across the world are under lock and key. And some tenants are reluctant to pay for facilities they can’t use, particularly if their own revenues are drying up. That creates a problem for landlords, and raises longer-term questions about how many workers will return to offices at all after lockdowns lift.

Enforced “WFH” has been eye-opening for employees who haven’t always been trusted to be productive in their jim-jams – and for their bosses too. In fact, according to a LinkedIn survey this week, more than 80% of people in desk-based sectors – think finance and IT – reckon their industries could be run just as effectively from the kitchen table. In a separate PwC poll, meanwhile, nearly a quarter of top executives said they’re looking at trimming office space or closing stores.

What’s more, as parts of the US and Europe slowly reopen – catching up with those East Asian trendsetters – companies aren’t likely to be able to squeeze nearly as many staff into social distancing-compliant offices. So even if they do end up using as much space as before, they probably won’t be willing or able to pay as much for each foot...

🥡 Takeaways

If less money is flowing from tenants to landlords, it’ll have a direct impact on the value of the properties themselves. After all, people only build or buy offices and retail parks for the rental income (a.k.a. yield) that the space will bring in. That might be why office-focused Real Estate Investment Trusts (REITs) have fallen more dramatically than the wider stock market since the lockdown. Those REITs make investing in commercial property simple for small investors without the billions needed to break ground on the next Burj Khalifa, but open them up to losses when times are tough.

It’s not just commercial landlords who are hurting: with nearly 37 million Americans having lost their jobs since mid-March, nearly a fifth of the working-age population are suddenly less able to meet their mortgage or rent payments. It seems unlikely that domestic landlords will be able to increase rents anytime soon, which will squeeze their returns but should offer renters the narrowest of silver linings.

🎯 Also On Our Radar

With face masks one of the must-have items of the coronavirus crisis, you might’ve thought 3M’s sales would be soaring. But while the maker of sought-after N95 respirators got a bump from its healthcare division, every other unit saw declining revenue – underlining how tough the economy is today. Speaking of which, Italy’s attempts to cap the price of masks at 50 cents apiece meant manufacturers shipped their stock overseas to customers prepared to pay more. That’s Economics 101, sadly.

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