Checking In: Real Estate and COVID-19

Checking In: Real Estate and COVID-19

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For our new “Checking In” feature, we reach out to partners and heads of practice across CEE to learn how specific practice areas are faring in their jurisdictions. For this inaugural piece, we asked firm Real Estate experts: "What effect do you think the COVID-19 crisis will have on the real estate market in your jurisdiction this year, and what do think will be the longer-term repercussions?"


So far, we have seen different effects of the COVID-19 crisis on the real estate market. While the boom for residential objects continues, the market for offices, particularly for open-plan offices, is currently under pressure. Quite a lot of companies still stick to home working, which might lead to a significant trend for doing so even after the end of the COVID-19 situation. As a result, companies might think about permanently reducing their office space.

We also see some negative effects of the COVID-19 crisis on the retail market. However, we think that the retail sector will recover quicker from these negative effects than other asset classes. Nevertheless, the competition between the “classic” retail business on the one hand, and online shopping, on the other hand, will continue.

With regard to tourism real estate, we see negative effects for urban hotels, which are strongly dependent on international tourism, conferences, and other events. Although during the last few days and weeks the restrictions on traveling within Europe have been partly lifted, intercontinental travel is still restricted to a great extent. On the other hand, regional hotels are seeming to recover from the shutdown quicker since Austrian people these days tend to spend their vacations in Austria.

The duration of said effects will depend on the development of the COVID-19 crisis. Anyway, the current crisis requires very cost-sensitive and creative crisis management in almost any asset class.

Peter Vcelouch, Partner, Head of Real Estate & Construction, Cerha Hempel


Although the full consequences of the COVID-19 crisis are yet to be perceived in the region, real estate companies have already been impacted. In these circumstances, lessors are faced with liquidity pressures resulting in deferring and ceasing rental payments. They are encouraged to proactively approach their lessees with the aim of defining a strategy for continuing business activities and maintaining business results at the highest possible level, while keeping a stable relationship, preserving liquidity, and complying with governmental recommendations. New opportunities are in sight for lessors, such as attracting new lessees from the sub-sectors of insurance companies, e-commerce, and data centers, given that these sub-sectors are expected to face fewer impacts of the COVID-19 crisis and expand their business in the near future. 

Since the real estate market is closely linked to GDP and unemployment rates, the duration and intensity of this crisis are difficult to predict. Due to higher unemployment rates and lower solvency of companies, banks are acting with caution and decreasing transaction volumes. If the drop in GDP would be short-term and the economic activity would reactivate in the first quarter of 2021, it is likely that the real estate market would stabilize soon after. If employment rates from 2019 are not reached again quickly, it is likely that more stringent loan conditions would remain in force and the interest rates would rise. However, if the interest rates remain at current levels, it is likely that that the real estate sector will recover quickly. 

Beata Adrianna Glinska, Partner, Head of Real Estate, Law Firm Glinska & Miskovic


Sectoral Differences: Different sectors have been affected differently. The hospitality/retail sector is the most exposed, the office sector differs based on tenant mix, and logistics seems to be unaffected.

Transactional Market: Deals tend to be prolonged rather than aborted, and some have even closed (GalCap – Rumbach Center, with our involvement). Most of the investors are likely to wait and see the effects of COVID-19 on prices, thus a substantial price drop is not expected in the short- or medium-term. 

Disputes: Mostly the retail, hospitality, and office sector tenants applied for rent relief, in some cases on a justified basis, but generally, landlords enjoy a strong position. As the Hungarian legislator did not intervene significantly in market lease terms (apart from granting a limited termination/rent increase moratorium), the resolution of issues was left to market participants. The flexibility of the landlords was determined by the asset’s bank financed status/asset’s ultimate ownership, but commercial sense helped to recognize where discounts had to be provided. There will still be cases where courts will need to ultimately resolve the disputes.

Long-Term Repercussions: COVID-19 caused such a global and sudden stop of the economy, affecting the property sector like everything else -- but it is not the largest victim of the situation. In general, the quality of the individual assets (i.e., location, tenant mix, technical features) could determine how the property market is affected by the crisis. COVID-19 is different as it hits specific parts/assets of the market, not the property market in general. Unlike in the aftermath of the last financial crisis, there is still substantial liquidity on the market looking for targets to invest and banks seem to continue financing viable projects. Hence, the basis for hopes in continued growth of the commercial property market is there.

Attila Ungar, Partner, Head of Real Estate Practice, Lakatos, Koves and Partners


The COVID-19 crisis indeed will have effects on the real estate market in Lithuania, but at the beginning of the crisis the market players were far more pessimistic than they are in June, i.e., now that the pandemic in Lithuania is under control and the lockdown has been revoked. Although we will probably have far fewer transactions this year than expected, in June we have much more optimism in the market. What is notable in comparison with the previous year is that investors are looking for not risky high-quality objects with greater diligence. Indeed, some investors are looking for sustainable real estate for a stable long-term investment to redirect their funds to in turbulent times, and this might help to maintain the market despite poor bank funding. 

The residential market dropped dramatically in April and May, but a rather rapid recovery is expected. The pandemic inevitably influenced the requirements for residential property – buyers are much more eager for properties with balconies or terraces. It seems that small apartments for sleepover would become less attractive this year and in the future. As many more employers are evaluating possibilities to allow employees to work remotely, space for a home office would inevitably become much more important. The tendency to work from home, in some part, seems to be a long-term one.

The logistic sector remained quite stable during the lockdown and modern logistic centers seem to be consistent in their high demand both in this and the next year. 

Audrius Petkevicius, Partner, Head of Real Estate Practice, and Jolanta Liukaityte-Stoniene, Real Estate Transactions Associate Partner, Ellex Valiunas


We see a considerable revaluation of the market. Some of the office projects perceived as almost risk-free are facing adjusted tenant demand. The likelihood of slower economic growth affects the take-up of the new space. Investments are being postponed or put on hold due to the uncertainty of pricing. Simultaneously we see the growing activity of opportunistic players, both in equity investments and the offering of alternative debt solutions.

The industrial sector is resilient, and we still encounter large portfolio transactions as well as new leases and developments. E-commerce tenants are shining more than ever.

The retail sector is struggling the most, which opens room for change and opportunity for all market players. The residential and alternative asset classes are still doing well; however, this trend may be reversed if the overall economic situation will deteriorate.

In recent months we have had the opportunity to help our clients in the performance of entire transactions in a full distance manner. It required a comprehensive approach to process management and careful planning. With great support of modern legal software solutions, we were able to deliver high-quality support in a new environment. From a practice management perspective, we see a challenge in the integration of our teams and passing knowledge to junior colleagues. Transactional lawyers used to learn through observation of the best practices of more experienced peers. Now we see a need for the development of comprehensive learning tools and programs that will replace the old model.

Michal Matera, Partner, Head of Real Estate, Allen & Overy

COVID-19 hit when the Polish real estate market had reached its historical peak in terms of investment volume. It means that many players are in good condition, and the prospects are generally good, but the impact of the pandemic, to a large degree, depends on asset class. 

The logistics sector is not only the least affected, but, in the long-term, should be the main beneficiary of the new normal. We may see no opportunistic projects this year, but, generally, things should go back to normal soon. 

As to offices, I am glad to see how quickly some players adapted buildings to operate in pandemic mode using technology. When it comes to transactions, the uncertainty about valuations will likely continue to impact the market for the next few months. While remote working may be tempting for many, and some tenants will redefine their needs for office space, expecting more flexible leases, I think that the concept of office work will, for the near future, continue to be the default model.

Retail is another story. Most of the problems faced by shopping centers are universal, but Polish COVID-19 legislation exacerbated them by introducing a temporary suspension of retail lease obligations, based on unclear and badly drafted concepts. Taking into account the already existing hurdles (such as the Sunday trading ban and retail tax), this sector will be impacted in the long-term. A lot depends on consumption levels, though. 

Residential has faced a slowdown but should pick up next year.

Daniel Kopania, Partner, Head of Real Estate Practice, Clifford Chance  

We expect that Poland will continue to draw foreign investors to the real estate market. The beginning of the third quarter of 2020 naturally brings some uncertainty and questions as to how the Polish real estate market will look in the months ahead. Listening to our clients, we believe that the market will continue to perform strongly in the logistics and light production sector, where both supply and demand are additionally driven by the impact of recent turbulence in the supply chain causing increased warehouse capacity needs and, to an even greater extent, the expansion of online trade. The latter trend has already existed for years, which the pandemic has only strengthened and accelerated. It will inevitably continue to enhance transactional activity. The office market is expected to maintain decent volume, but certainly not as substantial as in 2019. In this sector, uncertainties about pricing could extend transaction time. The retail market, however, appears to be in dire straits, having been negatively affected during the weeks of the governmental ban on trade and reduced customer activity. Already a troubled market even before the pandemic, it may suffer from value losses in the short term, but it will hopefully recover in the long term. The hotel and leisure market took an even greater hit, but also in this area we have seen some renewed activity and client interest.

As Poland reopens after the initial lockdown phase, we expect to observe a gradual recovery of transactional activity and things should return to normal in the last quarter of this year. The long-term effects of the pandemic are still unclear and depend on how we deal with the current effects of the pandemic and whether it returns in the form of a second wave later this year. Among the long-term consequences of the pandemic, we definitely foresee a growth of the logistics sector and related transactions, as well as an increased willingness by investors to explore opportunities in relatively new asset classes, such as data centers and related infrastructure projects.

Jakub Kutzmann, Partner, Co-Head of Real Estate, and Maciej Zalewski, Partner, Co-Head of Real Estate, White & Case


The lockdown due to COVID-19 led to uncertainty on the real estate market in Romania and, in this context, many investors are more prudent, in a "wait & see" mode, while new projects are, for the moment, put on hold. 

Due to the increase in the unemployment rate, we expect that the residential market will experience a slowdown in terms of transaction volume, especially on average quality/small value products.

With regard to retail projects, landlords had to deal with an avalanche of requests from tenants on rent suspension/reduction. Commercial centers may face the most disruption this year. Even if malls have recently re-opened to the public, sales will decrease, and some retail tenants will probably have to close their businesses, thus impacting the landlords’ rental income. 

Office space was less affected, but landlords here also received requests for rent suspension/reduction and many agreed to grant some facilities to tenants, although the support was not covered by GEO 29/2020, which granted some facilities to tenants whose activity has been suspended. Negotiations of new lease agreements for office space started before the COVID-19 crisis was postponed and, at this moment, the need for new office space has decreased.

In this uncertain, COVID-19-dominated environment, we expect to see the following longer-term consequences on the real estate market: (i) accelerated e-commerce trends are likely to affect lower quality retail centers while having a positive impact on the demand for logistics; (ii) both working from home and space-per-employee requirements within the office sector are likely to increase; and (iii) the residential market for high-quality products may experience an increase.

Oana Albota, Founding Partner, Head of Real Estate, Albota Law Firm 


Analyzing the impact of COVID-19 on the real estate market in Serbia, one can clearly see the difference in terms of leases, transactions, and, finally, the financing and construction of real estate. 

When it comes to leases, the impact of the global pandemic is certainly not negligible, however, the lease market suffered the most during the pandemic itself. From our experience, most of the lease agreements survived the first impact of the pandemic, whereas we are also recording an increase in demand for new agreements regarding the rental of retail spaces.

During the pandemic, according to current data, there was no drop in real estate prices. There was a decrease in sales and transactions, mostly due to the reduction of work of public notaries and real estate cadastres, but the prices remained almost intact.

On the other hand, the fear of a worsening economic situation is largely visible on the loan market and, consequently, in the construction industry. One of the first measures of the government to maintain and recover the economy during the crisis caused by the COVID-19 was the introduction of a moratorium on loans. The situation at the moment seems to be stable as the development of all major projects continued (with only a negligible number of players exceeding agreed deadlines), however, Q4 of 2020 will give a clearer picture of the pressure COVID-19 caused on the construction industry. Consequently, a decrease in the prices of real estate during Q1 2021 can be expected.

Marija Bojovic, Partner, Head of Real Estate, Mario Kijanovic, Senior Associate, and Aleksandar Stojacic, Associate, Bojovic Draskovic Popovic & Partners


After the first six months of 2020, it has become clear that the Slovak real estate market (especially investments in new development projects) is slowing down. As a result of the COVID-19 crisis, we can see that quite a lot of real estate developers are holding off on decisions on investments due to uncertainty in the pricing of land designated for future development.

On the other hand, strong real estate players know that any crisis can be a very good opportunity to show their strengths, complete pending projects, and be ready to supply high-quality products at the very first moment when the market recovers. Knowing exactly when the market will recover would bring anybody a fortune. Although some believe that it could be as early as autumn 2020, we are a bit more conservative and do not expect full recovery before summer 2021.

We do not expect that the majority of companies in Continental Europe (as opposed to maybe the US) would dramatically change their business operations and require all their employees to work from home and meet their colleagues or clients only virtually. Trends in certain industry sectors in this connection (as seen before COVID-19 crisis) will, however, continue. 

Some legal documents and structures that were standard before COVID-19 will change. We can already see that, for example, both tenants and landlords are requiring in new contracts clear regulation of situations similar to the COVID-19 measures imposed by public authorities (e.g.force majeure clauses or insurance of rent payment (business) interruption).

Martin Mendel, Managing Counsel, Co-Head of Real Estate, Dentons


Most commercial real estate – especially shopping centers, hotels, and business centers – were closed between mid-March and mid-May 2020. The hotels and the shopping centers have either only recently started their operations or are currently preparing to start. However, it seems that it will take time for the owners to reach the profit ratios of earlier days. Legislative measures defined the COVID-19 as a pandemic and limited the legal rights of lessors to exercise legal procedures against the tenants for the collection of receivables and the evacuation due to defaults in payments for the period between roughly March and June 30, 2020. At the top of the COVID-19 iceberg, commercial real estate investors are seriously affected by the legislative measures enacted in favor of tenants.

On the other side, the contractors of the turnkey construction projects are dealing with the consequences of the delays as well as the increased costs of material and labor costs. Such increased cost and delays in delivery time may create serious legal conflicts between the landowners and the contractors since construction against co-ownership inland is a widely exercised method to renew the housing stock of Istanbul (with its population of nearly 20 million). Thus, it is obvious that the legal claims for the adjustment of the obligations of the parties and the consequences of termination due to force majeure will occupy a significant place in Turkey for years from now on. 

A very important fact to be considered is that there is not a clear definition of force majeure in Turkish Law and most of the contracts in force lack such a definition and the consequences agreed between the parties. Hence the definition and the legal consequences of force majeure will be provided by the jurisprudence based on articles 136-137-138 and 363 of Code of Obligation. 

At the bottom of the iceberg, there is a whole new world alarming commercial real estate investors as a result of successful home-office practices which the conservative management world in Turkey never considered before March 2020, and which dramatically increased online shopping habits. Therefore, for commercial real estate investors, the impact might go beyond 2021.

Gul Ozdinc, Partner, Head of Real Estate Practice, Vona Law Firm