After The Storm
The COVID 19 global pandemic has had a profound impact on the business environment giving rise to unprecedented consequences. All industries have been impacted in varying ways with the Tourism sector taking the hardest hit by far with near zero airlift within the last 6 weeks, and the Barbados Hotel and Tourism Association reporting that 8 out of every 10 of its member hotels have closed. In the short term most businesses focused on survival, tenant preservation, employee and customer safety, and maintaining liquidity wherever possible. However, changes in consumer behavior brought about by the restrictions imposed during the shut-down period, may continue to impact companies well into the future. Subsectors such as commercial retail, office and warehouses could be impacted by changes in how and where persons shop, work, and changes in supply chains respectively. Real estate transaction volumes may also decline further with reductions in consumer purchasing power.
We have no way of pinpointing when things will change but it is clear that in the future it will not be business as usual. The traditional operating environment will be characterised by limited economic growth, social and behavioural change, potentially increased levels of non-performing loans in banking credit portfolios, and significant reduction in revenues across the tourism / hospitality sector and downstream businesses. Global markets continue to reflect a range of conflicting economic data points, and just this week, the Bank of England indicated it anticipates a very sharp fall in UK GDP this year though it said "given the assumed path for the relaxation of social distancing measures, the fall in GDP should be temporary and activity should pick up relatively rapidly."
As Valuers we recognize that with the level of uncertainty in the market, transactions occurring during this time and likely for some time after we no longer have cases , may not be reflective of true market value as there may be some undisclosed levels of compulsion in the deal. The RICS has provided guidance on the appropriate disclosure to be included in valuation reports around “Material Uncertainty” which may be attached to the report. A key point to note is that use of this clause does NOT render a report unreliable, it is used solely to indicate that a more frequent review of the property may be required due to the uncertain times
The Prime Minister announced a phased reopening of certain businesses from May 4, but we cannot yet determine when our economy will fully emerge from this crisis, particularly as Barbados still has a few active COVID-19 cases. To successfully navigate the “new normal” will require business leaders to consider among other things:
- How will people shop, live and work, and use real estate going forward?
- What impact will this have on pending acquisitions, disposals, development and capital spend?
- What will be the impact of investment capital and sources?
- How will this further impact business liquidity and debt repayments for owners and occupiers?
- What investment in technology may be required to facilitate sustainability, safety and remote working for stakeholders?
- What will be the impact of these decisions on the future valuation of assets?
Responses to these questions may have some, little, or no change on existing businesses, or may require a company to completely repivot its operations. The timeliness of any actions required, while still subject to reopening of the relevant sector in which the business operates– must be as swift as possible to facilitate recovery in the near term, and long-term survival.