Helping real estate back to business
The coronavirus pandemic has affected all aspects of UK real estate, from residential to commercial to industrial. As the property market begins to reopen following changes to the UK’s lockdown rules, two Barclays real estate experts share their forecasts for the sector in 2020 and beyond – and how the bank is ready to offer support during these unprecedented times.
One of the main challenges for the real estate sector since the UK lockdown began in March has been delays on house sales because of restrictions on people’s ability to move house, explains John Ainsworth, National Head of Real Estate for Barclays Business Banking. The sector is a major part of the UK economy and contributed £101.2bn in 2019 – 7% of GDP.
“We’ve seen some building sites going into closure and we’ve seen some difficulty in accessing materials and in the price of materials, which is all having an impact,” adds Ainsworth, who runs five teams across the UK that look after 7,000 real estate customers.
Since the start of the crisis, across Barclays Business Banking, we have supported 450 clients with capital repayment holidays with an approximate value of £300m (as of 22 May)
National Head of Real Estate for Barclays Business Banking
“In terms of commercial tenants, there have been issues for businesses that aren’t trading through lockdown and in some case are not able to pay their rent. In a similar vein, some residential tenants have been unable to pay rents due to unemployment or furlough. This has resulted in the majority of real estate clients seeing some reduction in their income levels and in some cases a cash gap. We’re looking to see how we can support them as best as we can, for example through capital repayment holidays or restructuring of facilities. Since the start of the crisis, across Barclays Business Banking, we have supported 450 clients with capital repayment holidays with an approximate value of £300m (as of 22 May).”
Reopening real estate
Following the UK government’s changes to the country’s lockdown rules, estate agents can now reopen, property viewings can take place and removal firms can resume operations.
With the property market reopening, there are multiple challenges facing the sector, says Steve Thomas, Head of Barclays Corporate Real Estate for the Midlands, Wales and South, which looks after clients with assets above £10m and borrowing requirements between £5m and over £100m. “Most developments will have started to get back on site now because they’ve reviewed government guidelines and are employing social distancing,” he says.
“Contracted sales have proceeded but new sales have been impacted as sales offices have been closed, although it has been great to see some developers selling online. On the property investment side, we have seen wide variations in rent collection levels from 25% to 95%. Sectors which service hospitality and leisure and retail, have been the most impacted while industrial and logistics have been far less affected. The impact of all that is cash flow is really being diminished and clients need our help and support to get them through this temporary position.”
From our experience to date we believe that our strategy holds firm in being able to support clients through the cycle.
Head of Barclays Corporate Real Estate for the Midlands, Wales and South West
“We’re still open to support customers”
Alongside administering government-backed schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS), Barclays is still “providing new loans which are not part of the Government backed loan scheme”, says Thomas.
“We’re still open to support customers with good propositions in the marketplace. We’re also providing clients with capital repayment holidays and covenant waivers and amendments, so we’re suspending the capital element of loan payments on their loans. That’s been the thrust of our support from the start of the crisis and so far, this has covered over 60 loans with a value over £2bn (as of 22 May). Our team looks after experienced developers and investors in real estate and their conservative approach has helped us support them to withstand this short term shock.”
As one of the first banks in the UK to offer a specialised real estate team, Barclays is well placed to support real estate clients during the pandemic and ensure that the sector continues to thrive. Comparing the economic impact of coronavirus to previous crises, Thomas says the lessons learned have shaped the bank’s response to the current climate – and its efforts to help the real estate sector remain resilient.
“If you look back at the recession of the early 90s, some lenders underestimated the cyclical nature of the real estate market by providing high loan-to-value’s which resulted in significant loan losses in that period. That was a real lesson for us, and our prudent approach leading up to the global financial crisis in 2008 meant we came out of that in a much better shape.
“Those lessons have definitely been carried forward for the coronavirus crisis and that’s why we are able to support our customers as we are doing now.”
“I think there’s still a lot to go through in the current crisis to understand what the true impacts are,” says Ainsworth, emphasising that the length and scale of the pandemic will influence any long-term changes to the sector. However, he adds, “from our experience to date we believe that our strategy holds firm in being able to support clients through the cycle,” and one of the potentially positive changes will be “more use of virtual systems and technology, whether that’s for client meetings or in terms of fulfilling and completing transactions”.
While many of the future impacts of the crisis remain unknown, helping to understand these is one way that Barclays' support for clients goes beyond lending. From providing guidance and support to offering market knowledge and thought leadership, Barclays’ industry leaders are continuously sharing their expertise with real estate clients to help back the recovery of the sector, says Thomas.