Remember we had to get out of quarantine on April 3? Even then, it was clear that this story is not for three weeks, but finally the long-awaited easing, which allows us to return to almost normal life. Quarantine, without exaggeration, has left its mark on every person, business and company, but this trace is very different: someone worked with a heavy workload, someone stopped completely. Even the construction and real estate industries experienced this time differently.
According to market participants, one-fifth of construction sites were suspended during quarantine. Obviously, these are unsystematic developers who work at the expense of buyers’ money and who do not have their own financial resources. At the same time, the big players continued to build, even despite the difficulties with the delivery of their employees to the sites and unauthorized inspections.
The delays that have now arisen are entirely within the permissible deviations that are already stable on construction sites. Therefore, it is not necessary to talk about a significant reduction in prices, especially for facilities that are in the final stages of implementation. In some facilities, which were not in demand before the quarantine, we can predict lower prices, but we will see the average market temperature only until mid-autumn.
Now we see an increase in demand for facilities that are somehow related to health and a healthy lifestyle – they are located in a clean area, small storeys, built of environmentally friendly materials using modern engineering systems, they have the ability to self-insulate , but do not reduce your comfort level.
At the same time, people both counted and will count their money. During the quarantine period, a large number of people lost their jobs or their salaries were adjusted, so despite the huge deferred demand, buyers will pay attention to the objects in which the price / quality ratio is observed.
It is already obvious that the pandemic will make adjustments in the creation of infrastructure for future housing estates – the requirements for epidemiological safety will increase, entrances and exits will be separated, premises will become larger, and green areas will be larger and more diverse. A park inside a residential complex will be a bigger advantage than a shop. How long is it? As often happens in the real estate market of Ukraine, each new systemic crisis dictates new conditions – so far they are.
Despite the fact that office centers did not stop working because the state did not give a direct ban, in fact, their residents were not able to stay there: first, when public transport was stopped it was impossible to get there, and secondly, at first on sale there were no masks or paramedics to ensure the safe interaction of people in the office. Therefore, most companies have tried to quickly reformat their work in remote mode.
At the same time, not all landowners went to meet their tenants and canceled or at least reduced rents, especially for large BC. Some of the stories with demonstrative relocations have hit the public domain, but in June we will see this as a mass phenomenon – about 30% of tenants who have not been given a discount will decide to change the location.
After the quarantine is completed, the trend of optimizing existing areas will start to gain momentum. Those who sat in 600 square meters. m, will try to squeeze in 300 or even 200. Many companies quarantine has shown that the office – a place for negotiations and storage of documents, respectively, it does not need such a size.
Therefore, in the future, the approach to office design will change: there will be such a thing as a flexible office, and security will be the cornerstone. All this will be reflected in the planning and technical equipment. In addition, it is time to implement the concept of “live where you work, work where you live” in Ukraine. Vertical IFCs, when you go down from the top floor, are an ideal place for creativity and work, and as quarantine has shown, they are also safe.
Quarantine almost completely stopped the work of commercial real estate in Ukraine. Of all the traditional tenants, only grocery stores, pharmacies, post offices and banks were allowed to operate.
The contribution of an anchor tenant and a few small lots to the total income of the mall is quite low, because it earns on high-margin shopping galleries, which were closed. Accordingly, shopping centers suffered huge losses, because the service, which in some places even increased, no one canceled.
But after the first shock, developers and retailers began to agree on the abolition of rent until the end of quarantine. This strategy will allow landlords to retain their tenants and quarantine without loss. Shopping centers that refused to follow this path, after quarantine may open with a vacancy of 20-30%. And this applies not only to small lots, the tenants of which are often private entrepreneurs, but also quite large networks that have leased large areas.
The profitability of the mall, as a development project, directly depends on the average rate for the object. In the facilities from which tenants are fleeing, we will definitely see lower rates. In addition, those facilities that were planned to open this year, will be forced to adjust their plans for profitability, and thus begin to moderately reduce prices to attract tenants to not yet filled space.
At the same time there will be no catastrophic fall in the market. Even in the event of an outflow of tenants and lower rents, competent management will be able to ensure the maintenance of the working condition of the shopping center and its rapid recovery. Professional and successful shopping centers, on the other hand, will be even better and more comfortable, as they will take into account all the mistakes that occurred during the quarantine. The same malls, whose concepts have outlived themselves, will go for reconception.
Therefore, no matter how difficult and long the quarantine period may seem to us, it will definitely transform the future of the market – I am sure that any turbulence will only harden it and make it better.
Andriy Ryzhikov, CEO and managing partner of the development company DC Evolution