So here we are – 2021. A year that we all hope will see an end to lockdowns, tier systems and facemasks. If 2020 was a seriously bumpy road, there will be a lot of hope and anticipation that we will eventually get back on the smooth, straight highway this year.
But is it naïve to think that having experienced two generational changes in one year – COVID and Brexit – the market won’t change for good, and where does this leave occupational demand in the commercial property market?
It is clear going into 2021 that there is still a general nervousness in the market about the economy and this will affect how occupiers view their businesses - and therefore their property requirements going forwards. This will have been exacerbated by Lockdown 3.0 in January and the expected stream of insolvencies and administrations that will follow after almost 12 months of trading disruption, especially in the retail sector. There will be winners and losers and a key factor to securing good commercial property investments will be to choose a sub-sector or a niche where demand from occupiers outstrips the supply of available property. It will be more important than ever to do your research. Tenant covenant is also crucial moving forwards.
Tenant covenant can be defined as the financial ability of the tenant to pay the rent for the lease term and beyond. A tenant’s financial standing will be determined by looking at both the economic outlook for the sector within which they do business, and the profitability and/or net asset value of the individual business.
The tenant’s ability to pay rent and comply with their lease clauses are important in this regard, but it is the marketability (or refinancing) of investments in the future that needs to be safeguarded, and for this tenant covenant is key.