“All of us, landlords, tenants, companies, regular citizens, authorities, are in the same storm, trying to navigate the current situation trying to chart a course in these uncertain times. Hopefully, we will make it to safe harbor together”, Bogdan Jigman, managing director, GTC Romania.
Our priority remains, as always, to protect and grow our business in Romania and in the region, by delivering on our commitments to the key stakeholders. Our shareholders, who want to maintain and increase the value of our portfolio. Our financing banks, who want to make sure that their investment in our business is safe. Our employees, who want to feel safe and secure on short term and on the longer run. Our tenants, who want to get the best office and commercial spaces and at the same time feel that they have in us a reliable partner. Of course, it is not always easy to balance all these objectives and keep everybody happy.
The current situation poses unprecedented challenges to the business environment, both short term and long term. Short term, people naturally and thankfully focus on the #stayathome instructions from the authorities. This affects business to different degrees, and we see it also in the activity of our tenants. HoReCa locations were of course affected the most. Other companies were affected to a lesser extent, though they also found out that their employees can, at least for short term, work from home and not from our fully functional office buildings. For our part, our employees currently work predominantly from home, though for some cases, we do have employees working from our office. We constantly analyze the situation of our buildings, the activity of our tenants, how each particular case is impacted by the current situation and developments. We try to be as accommodating as possible to tenants’ requests, though it is not always easy, since as mentioned, we do have to be mindful of our shareholders and our financing partners interests. Longer term, some people talk about “getting back to normal”, others about the “new normal” and I think that it is too soon to say how this “new normal” will look like. We will monitor both our portfolio and market dynamics and adapt to the new reality. For us, this is the most important lesson of the current situation, that we need to adapt fast, efficiently and, hopefully, with minimum costs. Some are already talking about “new ways of working”, “remote work as the new norm” and are touting the office space as outdated.
Personally, I think that we still need to see how the situation will evolve. There are advantages to remote work, though I believe this is not a one-size-fit-all solution and smart and efficient office space will still be required in the future. For example, if we look at the “social distancing” concept, offices will require a re-thinking effort to comply with the authorities’ recommendations. Also, in terms of lessons learnt, and certainly this applies to a significant number of landlords and tenants: always be mindful of force majeure and hardship clauses in the agreements.
Status of investments planned for 2020-2021
Our focus in 2020 and 2021 will remain in optimizing our current office buildings portfolio. We will consider the short- and longer-term effects of the pandemic on the office space demand and adapt. This means that we will invest in our existing buildings (changes required to meet “social distancing” guidelines or similar preventive measures – and that we will adapt our pipe-line projects to the demand – e.g. different office concepts). We remain committed to the Romanian market and trust that the office space demand will be resilient and recover.
Which are the advantages going forward? What are your expectations from the public sector, state projects to support future business?
This may sound like a cliché, but in real estate, the advantage is location, location, location. Our portfolio consolidated in the CBD and northern area of Bucharest is also top level in terms of amenities and we continue to invest in the upkeep and upgrade of our assets. We also have a solid reputation in Romania and the region – GTC started business in Romania 21 years ago. We have a history of developing and operating office buildings, before and after the 2008 crisis. We went through some challenging times, adapted, survived and thrived and are determined to do so again. Always, we had to develop and maintain good relationship with our partners, specifically our tenants. We will leverage on this and hopefully reach a win-win solution to whatever challenges the current situation will bring.
In terms of expectations from public sector, we would expect the authorities to act in a predictable and fair manner and consider the interest of all involved parties before issuing regulations. We understand that the priority is, as it should, to protect the public health. However, some regulations do not seem to take into account fully the business impact. One example is the government ordinance providing for the possibility for certain business to suspend payment of rent and other legislative projects that would be enabled. The intention is probably a good one – to provide some relief to tenants and support to landlords, but the current set up is more confusing than helpful and also sets-up some expectations to tenants. Long term, we would expect authorities to provide incentive measures to businesses so that they can survive and recover. As landlords, we are only as successful as our tenants, so we hope that the authorities would provide stimulus to struggling businesses.
What transformations you expect in your sector, their effects for the Romanian economy and in a regional perspective?
I believe it is still to early to speculate on the structural transformations that the Covid-19 situation will generate, though there will undoubtedly be transformations. We should first see how businesses and people will deal with the lockdown relaxation planned for second half of May, how everybody will adapt to the “new normal”.
For the real estate industry, we will have to see the development of the underlying demand for office space and I believe that the demand will resist the challenges, though in a different form. For example, some analysts are anticipating a possible normalization of the “remote work” approach, affecting more than 20% of the employees. Some would be quick to believe that this would lead to a 20% drop in the demand for office space, but this is not necessarily true, particularly short term. Some people will still have to come to the office or want to come to the office and those people will need different offices. Open space office – currently favored by many companies – may require substantial transformation.
Some analysts are talking about a change in residential developments (e.g. apartments with “home offices” that would accommodate the remote work, but another solution could be individualized offices that are closer to people’s homes or offices integrated in residential developments. Another example, short term, access to public transportation might be less of a factor than parking spaces / access via personal car, since people might be reluctant to use crowded public transportation.
Still, we would need to see if this becomes a longer-term trend and impacts the design and location of office developments. In terms of human resources, I believe that the way companies treat their employees now will be very relevant for the ability of those companies to attract, retain and use talented people in the coming years.
With this in mind, we tried to protect our employees as much as possible in these challenging times and will continue to do so. From an economic perspective, Romania will need to restart the economy as soon as possible and banks will play an important role in this. I hope they will manage to identify the bankable projects and reach a balanced view on the applicable interest rates.
What is your message to clients and partners?
We keep a very close relation with our clients and partners, so I hope most of them know the answer to this question already. Though this situation is challenging for everybody, we trust that we have the ability and flexibility to adapt. We face similar challenges and we will meet these challenges together. Sometimes interests may not fully align, and sometimes we will not be able to provide solutions to everything, but most times, together we will find a solution.
An article published in the exclusive supplement – “Market pulse report, Romania – The new normal” | June 2020
A property market tour, including major cities, with projects status and updated opportunities at the end of the lockdown in Romania – June 2020. | Essential news with the current status of further investments, clients and partners relations, new priorities for the post crisis cycle. | B2B communication report – to help you mark your statements during the changes period.
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