The evolving COVID-19 pandemic will affect all aspects of the commercial and residential property markets in Ireland both from both a rental and capital value perspective and the depth of its impact will be determined by the length of time it takes to get the crisis under control – an imponderable estimate at this stage.
It will be some time before we see rental evidence from all asset classes that reflects the potential impact of the current situation flush through in the form of new letting transactions. Therefore rent reviews currently under negotiation, or those with an effective date prior to the current developments, are likely to be unaffected, albeit possibly delayed. We estimate that the retail sector in particular (including F&B) will be particularly badly impacted by the protective measures introduced by the government, so attempting to instigate a rent review on this asset class at present needs to be sympathetically considered.
If the current measures introduced by the government are short-term and temporary in nature then we believe their impact on rent review activity will be restricted to time delays associated with negotiations or arbitral processes. If the measures were to increase in severity and/or extend for an indefinite period of time with a corresponding impact on rental values across all asset classes then we could witness arguments being presented by tenants for a reduction in rent at review. If conceded, these would extend for the period to next review. We believe the more likely scenario is that prudent landlords will consider temporary abatements / concessions / deferments as opposed to permanent reductions in rent, however it is clear that landlords and tenants will need to work in unison to ensure survival through this current crisis.
From a business rates perspective, the government has sought to take the lead in providing some form of financial assistance to commercial occupiers. In this area, the most recent announcement indicated the government will be deferring rates payments for the most immediately impacted businesses primarily in the retail, hospitality, leisure and childcare sectors for a period of three months until the end of May 2020. This is a programme of deferment and not a business rate holiday as seen in the UK for example and ratepayers are pushing for greater government assistance to get them through this difficult interim period.
From a valuation perspective the impact is again unquantifiable at this early stage in the evolution of the pandemic. While all observers generally acknowledge there will be a short to medium-term negative impact, the question is how negative and for how long. The SCSI and the Royal Institution of Chartered Surveyors (RICS) have sought to provide some guidance to professional members in terms of the impact of COVID-19 on Red Book compliant valuations.
If deemed appropriate, members are advised that they can introduce a ‘Material Uncertainty’ qualification into their reports. BNP Paribas Real Estate has sought to get ahead of the curve by introducing their own qualification to include in valuation reports surrounding valuation uncertainty and we have and will continue to follow internal guidelines and the advice of our professional body in this regard.