A host of property firms are either making redundancies, putting staff on furlough or asking employees to take pay cuts as the coronavirus pandemic causes deal flow to slow to a trickle.
Developers taking action include St Modwen Properties, which has placed 200 employees on furlough after pausing construction. It will top up the salaries of all affected employees so that they are paid their normal salary, while members of the board will take a 20% pay cut.
Among the agencies, Cushman & Wakefield is proposing a number of redundancies following a strategic review, including cuts in its retail team.
While C&W’s redundancies, thought to include its shopping centre investment team, are a direct outcome of a long-term review rather than a response to a specific event, the effects of coronavirus have put additional pressure on its operating model to be as efficient as possible.
JLL has confirmed it will put an undisclosed number of employees on furlough. It will top up wages for those impacted. All furloughed staff will also be invited to weekly online conferences with senior management so that they can keep up with the business, and will be able to access online training opportunities.
Elsewhere, Avison Young and Lambert Smith Hampton are reviewing options to furlough staff. Avison Young is also asking its UK staff to take short-term pay cuts.
Lambert Smith Hampton chief executive Ezra Nahome says “taking early intervention should place the business on a stronger long-term footing”.
Christie Group, which owns the agency Christie & Co, has put the majority of its UK staff on furlough, while issuing a warning that it will not be profitable this year because of the impact coronavirus has had.
Just the beginning
Many other firms are expected to follow suit. Speculation is rife about agencies, both large and niche, over plans to introduce either furlough or redundancy programmes.
“All of the larger firms will have to do something like this; either to make staff redundant, cut salaries or other [cash-preserving] measures,” said one experienced niche agent, who did not wish to be named. Like several other agents in the industry, he thinks retail will be hit worst.
He says: “Revenue will be hit particularly in retail and on the transactional side. That’s where the axe will fall.
“It’s bloody tough on the individuals, obviously, but if you take the shopping centre investment market as an example – there wasn’t much traded before, so it is hard to imagine much will trade in the foreseeable future. [The aftermath of] coronavirus will set a new normal across retail.”
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With viewings and inspections proving difficult, potential sellers across the board are evaluating whether to delay processes by another three months.
Financial analysts agree that with the transactional market largely frozen, save for some deals that were already close to closing, the larger agencies with high leverage are likely worried about servicing debt.
The impetus will be to cut costs as fast as possible, and among commission-driven agencies, employee costs are often the biggest overhead.
One major driver for this sudden influx is most likely because staff placed on a furlough scheme will have 80% of their salaries – up to £2,500 – paid for by the government, under its coronavirus job retention scheme.
Learnings from the past
Another reason this seems to be unfolding so quickly could be that more companies are applying learnings from the 2008-09 financial crisis. Back then, the policy response from central banks was much less hurried.
However, the monetary and fiscal response from the government to help businesses through the coronavirus pandemic took effect within weeks. Billions of pounds in liquidity has already been pumped into the UK market in a rare joint initiative from the government and the central bank.
“Lessons have clearly been learnt – synchronised central bank action, ‘big bazookas’ and even ‘helicopter money’ have been swift,” observes Green Street Advisors analyst Rob Virdee.
“Companies have also learnt this lesson. Let’s cut fast, batten down the hatches on non-essential capital expenditure, namely preserve cash where we can and see how it works out. Everyone is acting faster to protect liquidity.”
All of this, however, creates question marks over major firms that still rely too heavily on transactional work. Without the fee income from it, they could end up at the mercy of their lenders.
Furloughs: What employers need to know
Melanie Stancliffe, employment partner, Cripps Pemberton Greenish
- The government will reimburse payment of up to £2,500 per month, or 80% salary if less, for three months from 1 March to 1 June 2020.
- All employees are eligible, including those on flexible or zero hours, so long as they were on payroll at 28 February 2020 – except those on unpaid leave before that date, on statutory sick pay or self-isolating.
- The minimum period of furlough is three weeks. You can rotate the furloughed employees in blocks of at least three weeks.
- You can rehire and furlough employees made redundant after 28 February, but you don’t have to.
- It is calculated on the employee’s salary, not commission or bonus, as at 28 February 2020. If an employee’s pay fluctuates, you use the higher of a) same month’s earnings from last year, or b) average monthly earnings in the 2019/20 tax year.
- Employers can reclaim their minimum pension contributions on the 80% earnings and employer’s national insurance contributions on the furlough pay.
- Applications are through the HMRC portal being set up this month. They are estimated to be paid in June.
- An employee on furlough can’t do any work for or on behalf of the organisation, other than volunteering or training. They remain employed, subject to their normal contractual rights and obligations (eg confidentiality and not competing).
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