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The declaration of national emergency by Cyril Ramaphosa on 15 March 2020 changed the trajectory of our rainbow nation entirely. Risk assessment is one thing, but nobody could have foreseen the unique socio-economic situation we find ourselves in today. It came out of nowhere, and has permanently affected every single person on the planet. Thought-leaders are calling it the 'Great Lockdown', and there are already murmurings among economic historians of the 2020 Global Financial Disaster. It's being compared to the Great Depression, and dwarfs the 2008 Financial Crisis that we've only just really recovered from. Yet we know that it's not all about the crisis - it's about how you respond to it. Here are some ways our Cushman & Wakefield | Broll clients have already responded to the COVID-19 threat:
Business Continuity Planning - ensuring businesses can continue to operate as effectively as possible from home.
Safety of staff and securing of facilities which remain open due to being essential services.
Cost management - looking at all avenues to contain costs and defer the outflow of cash where possible.
Sub-lease income management - how to respond to requests for rent relief and what mechanisms are in place to recover the income.
Requesting legal advice on grounds for withholding rentals.
The most immediate impact of COVID 19 on Cushman & Wakefield | Broll was the rapid move into lockdown, and the extensive resilience-testing of our systems and tools to sustain ongoing remote working conditions. However, Natasha Bruwer, Cushman & Wakefield | Broll, Divisional Director of Occupier Services, feels that there are high confidence levels in the ability to operate remotely. So much so that conversations have sparked around how much space we'd really need after COVID-19, and the need for reassessing how we use and occupy space. Many businesses may even already be taking steps to terminate expiring leases and downsize office accommodation.
"The cycle is only half way through, and the next phase will show a dip in productivity levels, as teams start to see the after-effects of lockdown, lack of motivation, and problem solving," says Natasha Bruwer, Cushman & Wakefield | Broll, Divisional Director of Occupier Services.
In these troubled times, when everyone is being tested like never before, it's important to stay calm and proactive - not reactive. Kneejerk reactions and rash decisions can have permanent impacts on operations, but they're understandable. Lower expenditure and conserve cashflow, right? These are typical actions taken in times of little or no income, and they're also short term. We've all reacted to the indefinite national shutdown, and the consequences that have already reared their snarling heads. Now we must look ahead to the way we will survive and thrive in the world after COVID-19, which will be determined by how we respond to this threat. Natasha Bruwer shares that the Cushman & Wakefield | Broll response to COVID-19 strategies focuses primarily on two aspects: Business continuity planning and workplace strategy.
One trend that is shaping rapidly during this time of isolation, making all of us rethink our physical workspaces, is 'working from home.' This has many professionals looking at ways to completely remove the need for office space entirely, but there are differing opinions on this subject.
"I would caution large corporates against hastily give up office space during this initial phase (unless driven by necessary cost cutting) and advise that they rather take this time to analyse the behaviours and productivity of teams working remotely, and how office space may be utilised going forward." - Natasha Bruwer
Remote working is proving effective, but not all workers can do so. There will always be a need for office space, since some employees and teams work better when in the company of others. We should take this time to assess how workers have coped with the online meetings and digital interactions. This will give us an indication of which portions of operation can successfully be done remotely - and which realistically can't. Remote working is also dependent on a number of factors needed to conduct business online successfully. These include hardware/software availability, internet access, load shedding, etc. There is a shifting paradigm, from an office-based structure to a hybrid of in-office online activities.
"Remote working is not a new phenomenon. Large corporations have gone remote, only to pivot and instead rethink their office spaces." - Natasha Bruwer
Just to add to the complexity of the office space debate, there will be an interim period of desking layout that will be required to ensure safe social distancing measures, which will require more space to achieve before being able to send people back to the workplace.
Countless occupiers are reinventing themselves during this period in history, and a number of Cushman & Wakefield | Broll clients have reached out in search of COVID-19 response strategies, some not sure how they should proceed in terms of surviving the lockdown and getting the ball rolling again. We have responded by offering our clients long-term strategies, working with them to ensure that there is a plan for business continuity and growth moving further into this new decade. One must understand that it isn't wise to put concentrated pressure on individual segments of the value chain. We're all connected in the eco-system that is the South African corporate property industry, and should support each other as far as we can.
"Planning is key and analysing the business needs in the short, medium and long term will provide a more scientific, data-driven basis for developing a strategy for using space more efficiently, and for the purposes which benefit the business most rather than just for housing people." - Natasha Bruwer
Cushman & Wakefield | Broll is advising occupier clients to take a seat at the bargaining table before taking legal actions against non-paying parties. The legal route is long and expensive, and the outcome is hard to predict given how things have fundamentally changed in South Africa. The fastest and cheapest way to solve these sorts of disputes is through pragmatic discussion and negotiation of favourable terms. This removes pressure from the one side, while adding peace of mind to the other. Cushman & Wakefield | Broll has actively engaged clients on rental deferment agreements, something that has ensured the maintenance of amicable relationships. It's critical to keep in mind that the way professionals conduct themselves now will be remembered long after COVID-19 is a thing of history.
"Everything that takes place has a contractual element, and one can't suddenly hand back space in hopes that it won't have to be paid for anymore. There are critical events, like lease dates, that need to be honoured." - Natasha Bruwer
At Cushman & Wakefield | Broll, we understand that any future occupier strategy will need to place emphasis on operational continuity. Our workplace strategies include the establishing of client goals, restructuring of flexible leases, as well as end-to-end discovery on how our clients' employees work, and how this can be optimised as we move towards the re-opening of the economy. We support our clients in the short term by consulting on an effective COVID-19 response strategy, and how to manage unforeseen cashflow issues. There are various real estate levers that we can take advantage of to conserve cash or expenditure. In the long term, we craft strategies that are concerned with occupier security and growth for the foreseeable future. A large number of our smaller tenants have requested rent relief, and these are the considerations we put forward when they do so:
Proactive management of rent relief is recommended which results in control over how much rent relief is offered and what terms are preferable for the recovery of the deferred rental.
Leveraging of various mechanisms for the recovery of the debt, once again depending on the reliance on the income. The best chance of the tenant recovering from this pandemic is to provide realistic payback terms.
As a large corporate business acting as landlord to sub-tenants, the best outcome is for the tenant's business to recover in order to have this income stream continue post COVID-19.
"Cushman & Wakefield | Broll can help to negotiate right-size clauses or ways to structure a lease with flexibility, which will be key after the lockdown. It is important to allow flexibility now, so as to mitigate risks in the future." - Natasha Bruwer
We have weathered the lockdown storm because of two things: Forward thinking and a robust technological framework of operations. Our property services have experienced limited disruption, thanks to numerous cloud-based systems (like our proprietary online property management software) that mostly handle back-office services. The future is seamless, as brands like Google offer customers a range of services that can be accessed across multiple devices or platforms. Cushman & Wakefield | Broll is moving into the arena of apps, hoping to bring the convenience of seamless experiences to the South African property market.
"It is important to begin looking at the medium-term objectives now in order to ensure that opportunities which exist do not get lost by the immediate goals to contain costs and mitigate risk." - Natasha Bruwer.
Cushman & Wakefield | Broll expects the demand for office space to decline, and for rentals to soften, over the next 6 to 12 months. This will create opportunities to assess critical lease events, and analyse these in terms of:
Size and suitability of space and design of workplace strategy.
Rental charges and opportunity to renegotiate lower rentals.
Structure of leases and inclusion of pandemic clauses.
Opportunities to re-gear long terms lease hold sites.
These are challenging times, indeed. The world has had to band together in a way never seen before, and through times of tribulation a helping hand can sometimes be the difference between life and death. Our Occupier Services division provides comprehensive support to clients in need of guidance during this time of uncertainty, and will shine a light on proactive, strategic actions that can be taken in response to COVID-19.