Lenders and borrowers can expect ‘a reckoning’ early next year when the degree of recovery from the worst effects of the Covid-19 pandemic will be clearer.
The global head of real estate and hospitality at Natixis, Emmanuel Verhoosel, told PropertyEU that banks were focused on the short-term liquidity needs of their borrowers.
These are mostly linked to the lockdown and mainly in retail and hospitality ‘for very clear reasons’, he said.
‘We are providing waivers when we believe it is helping the client, so on the interest, on amortisation, as other banks are doing. It has been smooth but of course the reckoning will be early next year when we will see what is and isn’t working, what is structural and what is just due to lockdown. That will be the decisive moment.’
Verhoosel said he was ‘not extremely worried’ about hospitality in the medium term. ‘I see hospitality coming back, so I don’t think it is a structural issue. Tourism will come back, people will start to travel again, although maybe not in the same way so we will have to monitor that,’ he said.
By contrast, ‘for retail it is an acceleration of a tendency that was already there, so Covid makes this even stronger. So there is a structural element there. But again in retail there is good retail and retail that is struggling, and the struggling retail will have to reposition itself.’
In terms of new business, Verhoosel said Natixis will continue to adapt to the needs of its clients and is doing more healthcare, residential and proximity logistics financing. In the office sector, the bank will target buildings and projects which are modern and flexible, close to transportation and multi-tenanted where possible.
Rising office vacancy
Verhoosel’s colleague, Thibaut Cuillère, Natixis’s head of ENR/real assets research, has been studying the resilience of the office asset class in the next five to 10 years, looking at how vacancy rates will be affected by both the economic downturn and a sustained rise in home-working.
Cuillère said that in Paris the biggest negative effect on vacancy by far in the next two years will be from the economic crisis. ‘The decline in the take up and the rise in unemployment will translate into an increase of 2 to 2.5 points in the vacancy rate,’ he said.
The impact on vacancy of increased remote working will be countered to an extent by space required for safety/social distancing measures arising from Covid-19, meaning the effect on vacancy will be slow for the next couple of years; but there will be a bigger effect in the medium-to-long term, Natixis believes.
‘Then we believe the effect will be slightly higher, but still contained, translating into something like around 3 points of increase in the vacancy rate by 10 years’ time.’
Cuillère predicts that 35% of staff will be doing some remote working by the end of this year and 45% by the end of 2021, with a reversion to trend after that, of 1 point of increase per year on top of the 45%. Corporates will take the opportunity to think more about their space ‘and, for example, having more collaborative space, more wellness spaces..so the net impact on the total space will be lower than we might think.’
By 2024 the acceleration of remote working will adversely impact rents by 4%, the bank thinks.
Again, the immediate hit will be hardest from the economic impact. ‘Just due to the fall in employment we believe both capital values and rents could drop by around 10% from end of 2019 to end of 2021,’ he concludes.
