COVID-19: State of the Occupier Update - Frankfurt

Frankfurt (as well as the rest of Germany) is under complete lockdown. Chancellor Merkel announced on April 15th that social distancing measures will remain in place until May 3rd. Schools are expected to reopen May 4th and shops under a certain size will open their doors the next week. Most office occupiers are working from home, with only a few companies rotating their staffs on 50/50 shifts. Those choosing to run shift operations have offered additional health protection for their employees and issued a permit to allow people to leave their home to go to work.

Occupiers are reaching out to us to understand how other firms are navigating the crisis and for opinions on both short- and long-term impacts on real estate markets. We are also being asked to explore rent reductions. Some retailers have stopped paying rents up to 100%. Even some larger corporates are refusing to pay rent. In these instances, tenants must prove their business has been seriously affected by COVID-19. If a tenant has withheld rent, it must be amortized over the remaining lease term.

OCCUPIERS?

Occupiers are seeking rent relief from landlords. Most decisions regarding office leases have been put on hold. As different rules and laws are emerging across European countries, we are seeing multi-national companies having difficulty navigating the nuances of each. In these circumstances, occupiers are reaching out for clarity. 


LANDLORDS / DEVELOPERS / INVESTORS?

Landlords are assessing their options as it relates to requests for rent relief from tenants. The downside in agreeing to these requests is that landlords still must pay interest rates and taxes to the authorities, even with no rental income. Some landlords are using this time to complete refurbishment works, where possible, while offices are unoccupied by tenants. Developers lack the materials and manpower necessary to continue with projects, particularly due to the closure of national borders.

The situation of every landlord – from institutional to private owners – is different and there are different strategies to deploy in every case. Institutional landlords may be more likely to agree to short-term rent abatements in exchange for longer term contracts. Occupiers should pay attention to forthcoming legislation that may offer them additional protections. However, once we come out of this situation, tenants may benefit from increasing vacancy rates and limited demand in the markets. As occupiers are testing, in real-time, their capabilities to work from home, this practice may become more widespread and lead occupiers to rethink their space needs.

Contact us.