TheEconomistJune 27th 2020 571T
he secondweek of March was a heart-
breaking one for Will Beckett. The boss
of Hawksmoor, a chain of steakhouses that
employs 700 workers in Britain, had been
days away from opening his first New York
outpost. Instead government-imposed
lockdowns forced him to close all his res-
taurants down. The City types that usually
queue for its sizzling cuts were forced to go
without. So too were Mr Beckett’s land-
lords, after he told them he could not afford
to pay rent for the second quarter. Most of
his peers, he says, have also yet to square
the bill. Restaurateurs are likely to miss
their payments for the third quarter too.
Activity is gradually restarting. On June
23rd Boris Johnson, Britain’s prime minis-
ter, said he would allow restaurants to re-
open on July 4th. A moratorium on repos-
sessions, introduced in March, has been
extended to September. Yet social distanc-
ing and warier, cash-strapped diners will
squeeze eateries’ margins. Jonathan Dow-
ney, who runs street-food markets in Lon-
don, says the hospitality industry risks
“rent apocalypse”.
Most people probably have more sym-
pathy for chefs and waiters than for land-
lords. But many do not realise that pay-
ments made to commercial landlords are
increasingly channelled towards their own
pension pots or insurance claims. The glo-
bal stock of investible commercial proper-
ty—hotels, shops, offices and ware-houses—has quadrupled since 2000, to
$32trn (see chart 1). More than a third is
owned by institutional investors, which
piled in, lured by lucrative, solid returns.
Covid-19 has upended the impression of
solidity. Most immediately, it has severely
impaired tenants’ ability to pay rent. It also
raises questions about where shopping,
work or leisure will happen once the crisis
abates. Both are likely to prompt investors
to become more discriminating. Some in-
stitutions may shift their funds away from
riskier properties; other investors, mean-
while, might hunt for bargains, or seek to
repurpose unfashionable stock.
The infatuation with commercial prop-
erty began in earnest after the global finan-
cial crisis of 2007-09. Interest rates were
cut to almost zero across much of the rich
world, making it harder to generate the safe
cash flows that pension funds and insurers
need to meet future liabilities. “Core” prop-
erty—often in desirable places and needing
little refurbishment—typically produced
secure annual returns in the high single
digits to low teens, mostly in the form of
contractual, often inflation-adjusted, rent
payments (see chart 2 on next page). Buy-
ing property allows investors to park vast
sums of money—from tens of millions to
billions of dollars—which they can forget
about for years (commercial leases often
last a decade or more). And the returns
have been less volatile in crises than those
from public equities and commodities.
As a result both the numbers of institu-Commercial property
Like a ton of bricks
Over the past 20 years the investment world has fallen in love with property.
Is it the end of the affair?
Climbingtheladder
Investiblestockofcommercialproperty,$trnSource:CBREResearch,OxfordEconomics *Estimate1WorldChinaEuropeUnited
States353025201510502010 2020*0.12000Finance & economics
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