The changing landscape of the property market during COVID-19
With GDP expected to drop more than 20% in 2020 there is an inevitable consequence on commercial property across the UK, and it is likely we will see increasing levels of unoccupancy through both collapse in business trading, leases not being renewed or the workforce continuing to operate from home in a drive to cut costs and keep the business sustainable.
As a consequence, we are expecting to see some substantial shifts in the property owner market over the coming years and a diversification in property portfolios and potential use in how the property is used in the future.
What does this mean to the property market from an insurance perspective?
As we see an increasing number or commercial properties being empty, we believe there is likely to be a resignation of use across certain regions in the UK. This may exclude London but could hit other big cities or large out of town retail environments across the UK. For example, Birmingham has seen several retail giants occupying large prime retail space pull out due to the Pandemic. The void that these businesses leave will require a shift in thinking from the property owner to ultimately drive new sources of rent.
It is unclear yet what this diversification will result in, but we could see a move to convert them into flats supported by the government’s changes in simplifying planning rules in respect of permitted developments – of course this could contribute towards helping the housing shortage but will require a rethink of the current insurance programme both in occupancy use as well as the addition of contract activities taking place and needing to be covered.
With such a view across the commercial landscape it is important that brokers start to discuss their clients’ future plans and consider how their current insurance programmes are likely to respond.
Where the building is empty, it’s so important the client discusses with a broker who will advise accordingly on the client’s requirements and talk through a robust commercial (empty) property policy wording.
For commercial properties that remain occupied there is clear need for the broker to engage with their client to fact-find and ensure the rebuild value is in line with expectations avoiding any underinsurance issues if a claim arises.
Their clients, especially in the commercial sector, are likely to see rent and the income yield potentially reduce over the next 12 months.
In certain sectors we may actually see new opportunities with lending rates predicted to remain extremely low. In the near future we may see commercial borrowing increase with landlords who look to restructure their commercial portfolios and capitalise on low rates.
Ultimately this is a fast-moving situation and working with businesses who understand and can respond to such changes is going to be even more critical for brokers to consider when electing to place business on behalf of their client’s property needs.