What a work-from-home revolution means for commercial property

What a work-from-home revolution means for commercial property

As offices remain empty, does a financial reckoning loom?

Jun 3rd 2021

Offices these days are temples of indulgence as much as places of work. One Vanderbilt, a new skyscraper in Manhattan, has unveiled a restaurant run by Daniel Boulud, a Michelin-starred chef. Amazon’s second headquarters in Arlington, Virginia, will include an amphitheatre for outdoor concerts. In London, 22 Bishopsgate is so dog-friendly that its receptionists issue passes to pets. The recently opened glass tower, which dominates the City of London’s skyline, also houses a climbing wall and a spa.

As companies try to tempt workers back to the office, developers and investors are betting on new buildings with alluring amenities. But a huge uncertainty hangs over them: will enough people come? Even as vaccinations progress, workers have been slow to return. 

In early May only one in 20 buildings in America had occupancy levels above 10%, compared with a third in Europe and Africa, and roughly half of buildings in Asia, according to Freespace, a property-tech firm. With the return to work only just beginning, stimulus still in place and long leases yet to expire, the extent of any losses is worryingly hazy.

Covid-19 has sharpened the demand for newer buildings with better facilities. JPMorgan Chase, a bank, will reduce its overall office space even as it builds the second-tallest skyscraper in Manhattan for its new headquarters. More than half of tours across New York City by prospective tenants are of high-quality “Grade a” offices, compared with 38% before covid-19. This shift is happening alongside another disruption: a tilt towards greener workspaces. Energy efficiency and air-filtration systems are now seen as essential. Asset managers including BlackRock and Brookfield have pledged to get their assets to net-zero emissions by 2050 or sooner. Many property firms are pledging that all new buildings will be net-zero carbon. The shift towards wellness and sustainability is no fad, insists James Goldsmith of axa Investment Managers. “This isn’t a social experiment. We’re asset managers—pension money is at stake.”

Few in the industry, however, will be drawn on the reckoning they may face. The flight to quality is leaving older buildings looking undesirable just as remote working reduces the total demand for office space. Start with the risk that older buildings become stranded assets. Around half of Hong Kong’s premium stock and nearly two-thirds of commercial property in London were built more than 20 years ago. sl Green, Manhattan’s largest office landlord, says rents at its older properties are down by as much as 10%. Without substantially lower rents or improved ventilation, access to outdoor space or natural light, many will struggle to sell or attract tenants.

Some dated offices are getting facelifts. Fabrix, a developer, is upgrading a 1960s building in London to include a rooftop forest and a glass-floored infinity pool. Others will be converted into lab and research space, or houses. When aig, an insurer, moves to a recently renovated skyscraper in midtown Manhattan, part of its old headquarters, a tower block built in the 1980s, will be converted into flats. The City of London Corporation, which oversees the Square Mile, plans to turn vacant space into at least 1,500 new homes by 2030.

Yet none of this can mask the fact that as remote working sticks, demand for office space should fall. Companies are beginning to rethink their property needs, with many downsizing or delaying new leases. Globally, more than 103m square feet of office space has already been vacated since the pandemic began, according to Cushman and Wakefield, a broker. That is 18% more lost floor space than during the financial crisis of 2007-09. Vacancy rates rose steeply over the past year, reaching 18% in the spring in America (see chart 1). The forecasts are gloomy. Roughly one in five offices in America will be empty in 2022, according to Moody’s Analytics, a consultancy. Rents across the country are projected to fall by 7.5% this year; those in San Francisco, by 15%.

Puzzlingly, the gloom has not yet made its way into conventional measures of prices and credit. Rent-collection rates for properties run by real-estate investment trusts (reits) in North America remained above 90% for most of last year, according to s&p, a rating agency. They may have risen since then. The Economist has examined collection rates for half a dozen of the world’s big listed office landlords: the average stands at 98% for the most recent quarter. Delinquency rates on commercial-mortgage-backed securities linked to shops spiked last summer, and are still high, according to Trepp, a data provider. But those for offices have been unperturbed by the pandemic, at around 2%. The price paid for office space in several big cities has also held up so far (see chart 2).

A number of obfuscating factors cloud the picture, however. Generous stimulus might have postponed increases in delinquencies and distressed sales. And many firms have not made up their minds yet. No one knows how many workers will stay home, and for how many days of the week. For the most part, investors are avoiding rash transactions: buyers are wary of overpaying, while sellers are unwilling to take a loss in case the crisis turns out to be a blip. The volume of sales has shrunk, making prices a less reliable gauge of health.

One way to penetrate the uncertainty is to look at more forward-looking measures of valuations. These suggest that office property has been dealt a blow by covid-19. A price index based on appraisals, calculated by Green Street, a research firm, is 9% below its pre-pandemic peak in America. The share prices of reits that invest in offices remain 13% below their level in early 2020 (see chart 3).

Central banks are on the alert. The reliance of commercial property on debt financing means a downturn could have nasty reverberations across the financial system. Banks’ exposures are sizeable: the stock of loans made to the sector by American banks exceeds $2trn, or about a fifth of their total lending. In its latest Financial Stability Review the European Central Bank warned that subdued activity could be masking deeper trouble, and deemed risks from property to be “elevated”. Many pension funds around the world have loaded up on commercial property in recent years as lower interest rates have forced them to seek returns from less liquid assets.

The fate of office property could well rest on vacancy rates. If they stay high, then things could start to get hairy. In April the imf reckoned that a lasting increase in the vacancy rate of five percentage points would dent commercial-property valuations by 15% over five years. Fitch, another rating agency, estimates that the value of offices in America could fall by more than half if workers continue to work from home for three days a week. The long-term nature of property leases and the continued availability of debt mean that losses from the pandemic may not materialise for several years. But if the reckoning comes, it will be painful. ■

REFORMASI BUMN DI CHINA

REFORMASI BUMN DI CHINA

(studi kasus).

_Erizeli Jely Bandaro_

Hal yang sangat sensitif bagi China adalah reformasi BUMN. Karena maklum ini negara sosialis. 30% PDB China berasal dari BUMN. Hampir semua kader politik Partai Komunis China berada di lingkaran BUMN ini. Proses reformasi sudah berlangsung 40 tahun. Benar benar dilakukan secara gradual. Hampir setiap Presiden China berkomitmen melanjutkan reformasi BUMN namun mereka juga tidak mau menimbulkan konflik di Internal partai. Ancaman serius politik bagi Presiden China adalah terlalu keras memaksakan reformasi BUMN. 

Mengapa? Hampir semua kader Partai punya posisi di 400 BUMN/D China. Bukan rahasia umum bila BUMN menjadi sumber daya keuangan bagi partai. Mereka juga yang melahirkan banyak konglomerat di China melalui praktik KKN. Dampak dari praktik ini, walau BUMN China sangat raksasa dari segi ukuran modal dan pelanggan. Namun tahun 2003 hanya 6 BUMN Cina yang masuk Top 500 Fortune. Artinya secara management dan tingkat laba, BUMN China gagal menjadi perusahaan berkelas dunia. Padahal BUMN  mengumpulkan utang sebesar RMB 100 triliun (US $ 15 triliun) pada akhir 2017, setara dengan 120 persen dari PDB nasional.

Puncak reformasi BUMN China terjadi di era Xi Jinping. Itupun setelah Xi Jinping mengubah UUD China yang tidak membatasi jabatan Presiden. Xi Jinping juga menguasai hampir semua posisi menentukan di Partai. Jadi praktis dia menjadi penguasa tunggal di China. Di era Xi Jinping, serangkaian reformasi keras dilakukan sejak tahun 2017. Lantas apa saja langkah reformasi yang dilakukan BUMN China?

*Pertama*, mengklasifikasi BUMN sesuai dengan politik negara sosialis. Dasar hitungannya adalah index PSO (Public Service Obligation). PSO adalah kewajiban negara memberikan pelayanan kepada publik atas dasar UUD. Apabila index PSO di bawah 50% maka harus diprivatisasi. Namun apabila index PSO diatas 50% , pemerintah akan perkuat permodalannya dan memperluas dukungan subsidi agar bisa memberikan layanan lebih baik kepada publik.

*Kedua*, memisahkan fungsi operasional dan pengawasan. Secara operasional, peran negara hanya mengelola modal atau asset saja. Semua kader partai tidak boleh masuk ke dalam jajaran Direksi maupun Komisaris. BUMN harus dikelola secara profesional dan independent. Mereka harus focus kepada pasar dan menganut prinsip pengelolaan perusahaan berkelas dunia dengan standar good governance. Dengan demikian proses restruktur bisnis dan budaya berlangsung sangat cepat dan efisien. Bahkan bila diperlukan BUMN boleh merekrut direktur dari asing. BUMN China boleh melakukan privatisasi lewat bursa atau melepas saham kepada karyawan.

*Ketiga*, memperkuat posisi pengawasan BUMN secara kelembagaan. Di China lembaga yang berkuasa mengawasi BUMN bukan kementerian tetapi State-owned Assets Supervision and Administration Commission of the State Council (SASAC) atau semacam Pengawasan Aset milik Negara dan Komisi Administrasi Dewan Negara. Tugas SASAC hanya sebatas pengawasan kebijakan strategis. Yang mengawasi tugas SASAC adalah Kementrian Keuangan. Namun khusus lembaga keuangan BUMN diawasi oleh Central Huijin Investment Co., Ltd (Huijin).

*Keempat*, penyertaan modal negara hanya berfocus kepada BUMN yang mengelola industri strategis seperti Baja, Kereta Api, Listrik, Energy, Pertahanan, kontruksi. Untuk industri ini tidak boleh ada privatisasi dan 100% sahamnya tetap milik negara. Selebihnya boleh melakukan privatisasi secara langsung atau melalui bursa.

Apa hasilnya setelah reformasi BUMN itu ? Tahun 2019, ada 129 perusahaan China masuk TOP 500 Fortune, sebagian besar adalah BUMN. China mengalahkan AS dalam daftar Top 500 Fortune. Padahal tahun 2003 BUMN China yang masuk 500 Top Fortune hanya 6. Peningkatan yang luar biasa. Dan itu berkat reformasi BUMN yang dilakukan secara keras.

Teman saya di Beijing salah satu CEO BUMN, saya tanya. Apa kunci suksesnya BUMN China?  

“Menggeser peran pemerintah dari manajemen perusahaan ke manajemen asset. Artinya peran negara terhadap BUMN lebih kepada pengelolaan portfolio asset. Konsisten melaksanakan transformasi BUMN menjadi perusahaan modern dengan memperkenalkan kepemilikan campuran, merekrut manajer profesional, membentuk dewan direksi dan komisari yang tidak terkoneksi dengan Partai, dan memberikan wewenang kepada mereka untuk membuat keputusan pasar.” Katanya. 

"Emang salahnya apa kalau kader partai jadi komisaris BUMN. Kalau mereka mampu, kan sah saja."  Pancing saya.

"ini bukan soal salah atau benar. Bukan sah atau tidak. Bukan soal kemampuan. Tetapi  soal mental. Selagi dia orang politik, jelas mentalnya engga cocok duduk di perusahaan negara. Apapun alasannya! Sudahlah. Kami sudah 40 tahun belajar dari kasus kader partai jadi petinggi BUMN. Lebih besar ruginya daripada untungnya. Dan faktanya setelah mereka keluar dari BUMN, prestasi BUMN China kini kelas dunia. Sangat efisien." Katanya. Saya mengangguk tanda setuju.

Apa yang hebat dari China adalah kemauan politik yang begitu besar dari Pemimpin puncak yang didukung oleh elit partai untuk tidak memberikan akses kekuasaan kepada kader partai di BUMN. Karena tadinya para  kader partai itu menjadikan BUMN sebagai sumber uang memperkaya diri sendiri dan teman teman. Sementara kontribusi skill dan pengalaman bisnis mereka hampir tidak ada. Mereka menjadi pengangguran yang kaya raya karena jabatan resmi di BUMN. Semoga Indonesia bisa meniru langkah China ini.