Thoughts by Galetti Corporate Real Estate CEO, John Jack
Mass hysteria has set in and it will have a profound effect on the economy in the second and third quarter of this year.
As consumers flock to the shops and prepare for the worst, we hope that some financial relief in the form of payment holidays could be on the cards.
Times like these beg the question: Should banks offer a three-month payment holiday on capital payments for landlords in a deteriorating market?
While there’s no denying the knock-on effect that a bold move such as this could have, the effects of COVID-19 will only truly be felt in the next three to six months and that job losses are imminent. In addition, we are now seeing further restrictions to social gatherings and the early shutdown of bars and liquor stores which will have a massive impact on the economy.
Majority of the country lives month-to-month with very little savings to support any potential job losses. A payment holiday will greatly assist landlords who are paying for spaces which are hardly being used over this period. Landlords could in turn offer their tenants a reduced rental period to support businesses occupying buildings in their respective portfolios, giving them some welcome relief. We have already seen numerous tenants approaching landlords on this basis.
In certain instances, landlords have put new acquisitions on hold to store up cash reserves. It is interesting to note however, that not all sectors are hard hit and certain sectors are in fact benefitting from the situation such as cleaning and online businesses.
The interest rate reduction of 100bps, imposed on 19 March, is hugely welcomed by CRE which faces significant challenges in the current market.