Which Floor Will You Work On?

High profile developer Johnny Ronan had a tricky PR week with a Bewleys collapse and a questionably toned and timed holiday video. But…it could have been worse. Not that long ago Johnny’s PR efforts were devoted to convincing Dublin City Council of the benefits of high rise office buildings. The Council were not persuaded. Now, in a Covid-19(CV19) world, that decision may have been a blessing in disguise.

As back-to-work health and safety protocols come into effect you do wonder about elevator capacity restrictions (potential max 4 persons for skyscrapers) and the practicality of very tall buildings. Anecdotally, one hears about HSBC calculating a potential 2-3 hour wait for its 5,000 personnel in 20 Canada Square, Canary Wharf. The brutal truth for managers of that facility is that possibly only 10% of its workforce would be able to get to their desk in a reasonable time.

It will not be just retail properties dealing with a new reality. However, the chart below of European property price indices from Green Street Advisors would suggest a 6.6% fall in the office sector might not capture the full impact of CV19 compared to the 15% hit in the retail sector.

The consultants, Teuben and Bothra, estimated the size of the global professionally managed real estate market at $8.5 trillion. Savills thought the total commercial property market(retail plus office) was $30 trillion in 2015. Let’s just say there’s a lot of investment capital staring down the barrel of a design disaster if CV19 precautions remain an ongoing feature of working life.

The US and its Federal Reserve Bank have pretty good data on the risks involved. Here is a chart showing commercial real estate loans from all US banks hitting $2.4 trillion which is a 50% higher exposure than the 2008 crash period. Now, think about all the non-bank providers of debt capital who were chasing yields over the last decade of almost-zero interest rates. Think hedge funds, private equity, pension funds, sovereign wealth funds……

Meanwhile, the daily drum beat of “forever” work-from-home announcements from the likes of Facebook, Shopify and Twitter would suggest office leases and valuations are due some challenging reviews.

Of course, there are challenges everywhere in business but now and again a fortuitously delayed decision or a stubborn policy stance can make things a lot easier. It would appear, at this surreal pandemic moment in time, that Dublin and Johnny Ronan might have just dodged a high rise bullet….

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