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Altus Group survey reflects cautious confidence as office stakeholders navigate pandemic

Altus Group survey reflects cautious confidence as office stakeholders navigate pandemic

TORONTO — A new survey sees some optimism mixed with caution in the face of the COVID-19 pandemic.

Altus Group surveyed 115 Canadian pension funds and life companies, publicly traded corporations, private companies and consultants to take stock of their views on COVID-19’s impacts on the economy.

One of the key findings in the study was that in the short term, a tentative return to offices will not have a significant impact on most revenue except parking.

The vacancy and bad debts applied to survey respondents’ models also didn’t change significantly between the June survey and an earlier April survey.

However, a return to the office with physical distancing in place does mean more resources are needed for training, security, cleaning and disinfection and those conditions won’t change until a vaccine is discovered or there is no danger of a second COVID-19 wave.

Those surveyed found the pandemic has “unequivocally demonstrated the technological feasibility of working remotely, meaning that more flexible work-from-home policies and satellite offices in the suburbs could gain popularity,” the report stated.

The survey also surmised over the longer term a rise in vacancies from bankruptcies and rationalization of space use will also exert downward pressure on net effective rents and increase the risk of bad debts.

Until there is a vaccine or cure, return to a “new normal” for deal flows will require clear underwriting guidelines, tenant solvency, a return to confidence and an understanding of the depth of the recession, the survey stated.

The scope and impact of changes will only become clear once leases are renewed, and in the longer term potential reduction in space requirements brought on by more people working from home will be offset by less density per workstation, but “it is not yet clear whether the balance will be positive or negative, or in what proportions,” the report said.

The survey involved 50 Altus Group practitioners surveying respondents from May 28 to June 12 with a total participation of 136 unique respondents from British Columba, Alberta, Saskatchewan, Manitoba, Ontario, Quebec and the Atlantic provinces.

Survey topics included market conditions, industry response to the COVID-19 crisis in terms of strategic operational changes, investment plans, transaction activity and cap rate expectations. Key assumptions supporting valuations of income properties included rental rate forecasts, vacancy lag, tenant retention and probability of renewals and vacancy and credit allowance.

Anonymous comments from survey participants included in the report ranged from “business needs an understanding of the changed fundamentals. What is the ‘new normal’? As opposed to last month, we no longer feel this is a temporary situation. Things have fundamentally changed,” to “unfortunately, we are likely 12 to 14 months away from a vaccine and even once this has been achieved, getting the oil and gas business back up and running will remain a challenge.”

Other concerns cited were the current political environment in the United States and a need for clarity once restrictions have been lifted as to how difficult it will be for tenants to continue to pay rent.

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