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Filip Polomský: Signs of an office downsizing are growing

7 months ago

Interview Filip Polomský by Robert McLean from thePrime, real estate and investment news portal covering the Czech Republic, Slovakia and the region.

It’s now been two years since MVGM took over JLL’s European property management division. That means in view of the Covid-19 pandemic calendar, the company has had a true trial-by-fire introduction – especially in Central Europe. MVGM was already active in the Netherlands and Germany back in 2019. In Slovakia (as elsewhere), the transaction resulted in a smooth of employees from JLL’s to MVGM’s payroll.

Otherwise, says director Filip Polomský, his team simply didn’t even have to change locations since most work on location with customers. “Currently we manage more than 550,000 sqm in Slovakia for all kinds of commercial premises in a total value exceeding €700 million,” says Polomský. More recently, the company (which now numbers 24) began offering facility management services and by November had expanded its portfolio to almost 200,000 sqm.

As in other countries, Polomský says Slovakia’s industrial sector came through the storm of the pandemic better than other commercial sectors. “Even now, there are developers that are really buying any land that’s available at almost any price,” he says. While the global chip shortage has hit the output of the automobile sector, so far none of the assets MVGM is involved in has seen any negative impact on collections.

Smaller office requirements

The situation is more complicated, however, with the office market. On the positive side, Polomský reports that rent collection has mostly been solid, as end users in class A buildings live up to their strong covenant ratings. But with just 30% of office workers coming into work on a regular basis, he says change could be coming. “The signs are that when it comes to lease extensions a lot of companies will be looking to downsize.” This is more likely among U.K. and American corporations, he says, since those tend to be more reserved about fully re-opening their offices in order to avoid Covid outbreaks. “But the local companies are mostly daily in their offices and running their operations/business normally.”

“Some employees prefer working in the office because they’re unable to work from home,” says Polomský. “Others wanted home office even before the pandemic but their companies weren’t willing to allow more than 3 days per month. They’re happy now.

Mall pain

But it’s Slovakia’s retail network that was hit the hardest, especially when the F&B segment is included. The most glaring problems are in the largest malls, or in regional shopping centers that have significant competition. “Shopping centers have suffered the most, of course, from a footfall point of view,” says Polomský. “Turnovers in 2020 were similar to 2019 for the months where there was no lockdown. But there was a drop in turnover for the whole year, of course, and collection wasn’t the best.” Stronger covenants and more international brands generally performed better, he says, and state compensation which covered 50% of the rent prevented greater carnage.

It remains to be seen how hard the current lockdown in Slovakia will hit shopping centers. For the last two weeks, customers haven’t been allowed in the stores themselves but can pick up orders made online. Beginning next week shops will reopen for the vaccinated and recently recovered, but these rules change from one week to the next. “We’re monitoring the restrictions situation with the restrictions on retailers. A hard lockdown just a month before Christmas would have a very negative impact on overall retailer turnovers, and consequently on the turnovers of landlords.”

Away from the malls, the DIY sector almost seemed to benefit from the sudden interest in home improvements sparked by the pandemic. “They had record breaking turnovers in 2020 and they’re still doing well in 2021,” he said. “We were even successful in increasing rents and prolonging lease agreements in this tenant group.”

Restaurants and service shops in office buildings are a chapter unto themselves. With so few people coming to work each day, revenues have been thin. Polomský says his team has encouraged office building landlords to give such tenants significant rent reductions. That’s because they bring in just a fraction of the total rent roll but play a big part in creating a building’s atmosphere. The decision of whether to offer flexibility often comes down to the tenant/landlord relationship before Covid hit. “If it’s a good tenant with a long-term relationship to the building and the landlord then usually it’s fine. If the relationship was not good and perhaps the tenant often didn’t pay on time, then we’ll often try to find a new, better fit.”