What impact will the Coronavirus (COVID-19) have on your upcoming fitouts?

What impact will the Coronavirus (COVID-19) have on your upcoming fitouts?

2 March 2020

At risk of sounding facetious, it’s evident that even the Oceanic property market is in need of Coronavirus immunity.

Australian companies large and small are finding just how susceptible they are to the vagaries of what happens in China. With supply lines suddenly cut short, stocks of finished goods and parts are rapidly dwindling, the impact felt first by those that normally enjoy fast inventory turnover. Not far behind are those with longer lead times, many of which could initially maintain delivery expectations but will feel the impact later and for longer.

The effect on commercial property is complicated. As at any time of uncertainty, the first reaction is to delay decision making – sit on existing leases, reduce transaction risk, postpone discretionary fitout expenditure. Ramifications ricochet through the market, with fewer options for tenants and less security for landlords.

Fitout projects that are in progress are inevitably facing delays. Supply lines of both componentry and furniture are vulnerable, and contractors are less keen to rush completion as they have fewer new projects to move on to.

‘Best guess’ scenarios set the likely ‘resolution’ of the threatened pandemic as the end of H1 2020. That won’t mean the end of the challenges – it will take time for manufacturers to rebuild capacity, meet latent demand and re-establish supply lines. Australian companies that rely on China for products, parts and equipment justifiably fear that they, as relatively small global players, will fall low down the pecking order for re-stocking.

So, what are we seeing in response?

Firstly, recognising our enormous dependence on the Middle Kingdom, organisations are looking to establish alternate or complementary supply lines. Manufacturers in Vietnam and Malaysia, for example, are likely to benefit from this both in the short term and beyond.

Secondly, aspects of the way we work are being challenged. In China, patterns of rotating the in-office workforce to reduce infection risk are proving effective – the trend toward workplace flexibility is likely to accelerate there and, as others watch, elsewhere in the world. Demand for workplace health and wellness will increase: companies are looking for ways to reduce staff density in offices and ensure healthy air and sanitation. Pressure will be on landlords and asset managers to raise cleanliness standards and improve shared space management.

Thirdly, we need to look at ways of managing risk and planning in property decisions. Neither the term nor severity of the COVID-19 threat is known. Acting ‘like all the rest’ adds herd risk – when you are ready to take on delayed decisions, so is everyone else, reducing choice and raising costs.

Good advice is critical – drawing on the enviable experience and excellent resourcing network of CRCPG will help you find, time, negotiate, source and fitout the right property for your business.

Our industry is not immune, but it is still possible to reduce risk and find opportunities.

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