COVID-19: “Don’t Rush Into A Rent Holiday” Advises Industry Expert, GKRE

Published on March 30, 2020 - By Jo Meunier (née Disney)

• Will Kinnear, Director at GKRE, offers guidance to flexible workspaces facing operational challenges during COVID-19.
• A specialist in flexible workspace transactions, Kinnear urges operators to review operational costs and plan ahead.
• Instead of rushing to landlords and asking for a rent holiday, operators should fully understand how their business is going to be affected over the next few months.

In a Q&A with Allwork.Space, Will Kinnear, director at London-based GKRE (Green Kinnear Real Estate), offers advice on how to cope with operational challenges during the COVID-19 pandemic.

Allwork.Space: What advice can you give to operators who are concerned about cash flow over the next few months? What are the first things they should do?

During a time like this, cash flow will be pressured across almost all industries. With the latest reports from Hubble estimating a 90% reduction in flexible workspace transactions since the Covid-19 outbreak (source: Property Week), now is the time for operators to review their operational costs and plan ahead.

All indications are that this period of uncertainty will not be long term and so operators should naturally be looking to reduce costs now, but they should also be looking to ensure that the services they provide remain robust for the months to come.  

The best way for operators to continue to provide the right service for their customers, is by working closely with their clients to address their needs and concerns during this time and in its immediate aftermath. Understanding their clients’ concerns and providing a service is ultimately what flexible workspace providers already do but now, more than ever, it is imperative that this relationship is enhanced.

Allwork.Space: Should operators approach their landlords? What kind of questions should they ask and how should they prepare for that conversation?

Our advice to operators, facing contract cancellations and reduced cash flow, would be not to rush to their landlords and ask for a rent holiday without having fully understood how their business is going to be affected over the next few months.

Instead, they should communicate their concerns regarding the current economic situation and come together with their landlords. After all, they are likely to share the same pressures as their tenant operators. Importantly, creating an open and honest dialogue between landlord and operator will serve to create a level of certainty and trust between partners during an otherwise turbulent time. Cooperation will be vital to ensuring continuity for operators in the coming months.

With this considered, operators should take the time to review their options, including cash flow forecasting, to clearly establish outgoings and income streams and to determine exactly what they may need from their landlord.

Allwork.Space: What type of outcomes might be available to help operators get through the next few months?

While the next few months remain uncertain, the flexible workspace industry is likely to bounce back given the ongoing enforced changes to our working culture. The move for the majority of us to working from home will no doubt result in increasing preference for a more flexible working culture that favours team hubs and remote working. Companies both large and small will likely review their working practices in order to maximise the efficiency of their existing real estate moving forward.

Owing to this longer term outlook, landlords could perhaps look to work with operators to vary the terms of their agreements in such a way as to allow both parties to absorb the impact of the current situation and profit from the likely change in working and real estate practices by tenants.

Working together to ride out this down period in the short term is likely to create longer-term benefits for both parties involved.

Allwork.Space: While Government advice is changing every day, are you aware of any support plans available now to help operators?

The Coronavirus Act has a few policies in place that can support smaller businesses and protect commercial property tenants during this time. For example, the Act states that the landlord forfeiture right is suspended. During uncertainty, this will mean that landlords will be unable to forfeit a commercial lease for non-payment of rent. Of course, in order to protect both parties going forward, this is something that landlords and operators should discuss together, and something that both should only consider a last resort.

Other measures include grants to SMEs and schemes such as the Coronavirus Business Interruption loan scheme, which includes a Business Interruption Payment cover for the first 12 months of payment. Most banks are offering this facility, so this is certainly another avenue worth exploring for businesses that need support over the coming months (read more here). We are aware, however, that some banks are asking for personal guarantees that the Government must clarify going forward.

Another key consideration is that of self-employed and employee support issued by the Government. For those who work for themselves and have three years of invoices, the Government will be able to compensate for lost profits during this time.  Meanwhile, the Government has issued employee allowances that allow a business to furlough its staff during this time, with 80 per cent of salary paid for by the Government and 20 per cent issued by the employer.

In the case of flexible workspace, which is at its core a service industry, this may be an option for operators looking to reduce costs in the face of a diminishing client base over this period. Of course, when everything returns to normal, the hope is that those who are furloughed can be reinstated.

For more information or advice, contact Will Kinnear or Douglas Green at GKRE via the website at www.gkre.co.uk.