London office market yet to feel ‘true impact’ of coronavirus, says landlord
Job cuts and business failures will leave workplaces empty and hit rents
The real impact of coronavirus on London’s office market has not yet been felt, with job losses and business failures likely to increase vacancies and drag down rents, according to one of the capital’s leading landlords.
Derwent London, which owns the Brunel building in Paddington and the White Collar Factory on Old Street, said the “true impact of the lockdown” was yet to be reflected in the market, and predicted sweeping changes for workplaces because of coronavirus.
Vacancies across London’s offices will “undoubtedly” rise, according to Paul Williams, Derwent’s chief executive. That in turn is likely to put pressure on rents, said the company as it announced its results for the six months to June 30 on Tuesday.
Derwent swung to a first-half pre-tax loss of £14m, from a pre-tax profit of £130m in the same period a year earlier. The loss came as the value Derwent’s £5.4bn portfolio was revised downwards by £68.3m by property group CBRE, having increased £75m in the same period of 2019. Despite the loss, the company increased its interim dividend by 4.8 per cent, to 22 pence a share.
Office occupancy levels on the company’s estate was roughly 15 per cent, according to Mr Williams, who does not anticipate workplaces getting beyond 50 per cent of capacity in the next two or three months.
While there was demand for new space, including from the likes of Netflix and law firm Slaughter and May, occupiers’ priorities have shifted, said Mr Williams. “They are saying they want more space available: less hot-desking, less packing [people in], less sedentary desk space; more collaborative space,” he added.
Paul Gold, cofounder of office leasing company Hedge Real Estate, said that rather than hitting all rents equally, coronavirus was likely to create a two-tier office market in the capital. Companies that have taken on long-leases in the past few years would sub-let them to others, often at a heavy discount, he said.
“That’s where the big supply line is going to come from. It will be much cheaper than any operator. All [the businesses] want to do is ditch it. That inevitably will affect the market,” said Mr Gold.
Derwent was also hit by lower than normal rent collection, suffering a roughly 20 per cent shortfall for the months since coronavirus hit the UK.
The company is considering changing the terms of some its leases with restaurants and retailers — which make up less than 10 per cent of Derwent’s portfolio — to allow tenants to pay rent based on what they earn, rather than as a fixed cost. So-called turnover leases are increasingly being considered by landlords looking to support hard-hit businesses through the crisis.
Derwent also announced the departure of Simon Silver, one of its co-founders, who will retire in February 2021.
US online shopping forecast to beat 2019 total by October
Consumers on track to spend more than previous year even with major sales events still to come
American shoppers are on course to surpass total online spending in 2019 as soon as early October, analysts forecast, though the explosive growth in pandemic-driven ecommerce is beginning to slow as parts of the country attempt to reopen.
Data from Adobe’s Digital Economic Index report suggest Americans have now spent $435bn online since the start of the year — with analysts estimating almost $100bn in extra spend moving online due to Covid-19 lockdowns.
At the current growth levels, Americans will have spent more online than they did for the entirety of 2019 by October 5 — with Amazon’s Prime Day, Black Friday, Cyber Monday and Christmas still to come.
“We’ve just trained the consumer to shop a different way,” said Sonia Lapinsky from retail consultancy AlixPartners. “They’re now comfortable at home. They’re used to buying things without ever having to leave their house.”
That said, Adobe’s analysis, compiled using anonymised transaction data from 80 of the top 100 online retailers, suggests some level of eagerness to return to brick-and-mortar stores once conditions allow. While each month since March has brought a new sales record for online shopping, July’s $66.3bn spend was up 55 per cent, year-on-year, Adobe said, compared to growth of more than 70 per cent in each of the previous two months.
States that had loosened lockdown rules saw a smaller increase in online spending than areas where stricter measures were in still in place throughout July.
As well as the modest return to brick-and-mortar locations, spending levels also dropped “as households tightened their belts due to falling employment levels and looming cutbacks in unemployment benefits”, said Adobe analyst Vivek Pandya.
Maintaining its boost in popularity since March was “buy online pick up in store” — up 23 per cent year-on-year, with almost a third of consumers surveyed saying they preferred that option over delivery.
Amazon’s continued struggle to maintain its one or two-day delivery promise has created an opening for competitors such as Walmart and Target, which have the advantage of having a larger number of locations that are much closer to communities, offering both fast delivery and allowing customers to drive to their nearest location and fetch items immediately.
“What they’ve been doing is leveraging their retail network and turning them into mini-fulfilment centres,” said Ms Lapinsky from AlixPartners.
Amazon is said to be looking into addressing this issue by taking up some recently vacant mall space belonging to Simon Property Group, according to a Wall Street Journal report on Sunday. Neither company would comment on the report.
“I think we’re seeing Amazon reacting to that loss in market share with an amplifying and an acceleration of tactics to build out their networking further,” Ms Lapinsky added.
Germany’s Uniper warns of possible Nord Stream 2 loan write-off
Energy company was 1 of 5 to lend to Gazprom-led pipeline, now threatened by US sanctions
The German energy company Uniper said it may have to write off a loan it provided to the controversial Nord Stream 2 gas pipeline, citing a growing risk the project could be delayed or even collapse under the pressure of US sanctions.
In July, the Trump administration ramped up efforts to derail the Baltic Sea pipeline project, which is being built by Kremlin-controlled Gazprom. It threatened not only sanctions against companies involved in building the pipeline, but those facilitating it.
Half the funding for the pipeline has been provided by five European energy groups: Shell, Uniper, OMV, Wintershall and Engie.
Andreas Schierenbeck, Uniper’s chief executive, on Tuesday told a conference call that he still expected the pipeline to be completed, and said the sanctions would not directly hit Uniper, as a financial partner.
However, he added: “We can’t exclude [the possibility of] such an extreme scenario. We can’t exclude that we could have further delays and that the pipeline might not be finished,” he said. “We are worried about these sanctions, and we think it is important for the European gas supply nevertheless.”
Nord Stream 2 is meant to carry gas directly to Germany and Central Europe, circumventing traditional transit countries such as Ukraine and Poland. The debate over the pipeline has further strained relations between Berlin and Washington, where sanctions have strong bipartisan support in Congress.
In July, US Secretary of State Mike Pompeo warned companies to “get out now, or risk the consequences”.
Uniper’s chief financial officer Sacha Bibelot described the move as “perfectly normal risk management”.
Uniper would not disclose the size of the loan it gave to Gazprom, but said it had already been paid out. The five energy companies that helped finance the project committed to contributing up to €950m each, with Gazprom financing the remainder of the pipeline.
Nord Stream 2 has only 160km of underwater pipeline left to build to reach its receiving station in northern Germany, but has been plagued by legal challenges and sanctions.
Despite concerns over the Nord Stream 2 project and the economic crisis in the wake of the coronavirus, Uniper said operating profit in the first half of the year rose from to €691m from €308m in the same period last year. The company expects full-year operating profit of about €900m. Mr Schierenbeck called the company “crisis-proof” in the pandemic.
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Gapping down
In reaction to disappointing earnings/guidance:
- TLRY -9.9%, IPAR -9.6%, NGL -9.5%, INO -8.4%, OMER -7.6% (also announces stock offering), CNXN -5.8%, ZI -5.3%, RPAY -4.7%, IFF -4.3%, ANGI -3.9%, IAC -3.8%, HALO -3.7%, OXY -3.6%, GOOS -3.3%, XPER -3.2%, NSTG -3%, QLYS -2.8%, BNTX -2.1%, SSL -1.7%, ESPR -1.4%
M&A news:
- BBDC -3.9% (to merge with MVC)
Other news:
- FENC -35.2% (receives complete response letter from the FDA for its new drug application for Pedmark to prevent ototoxicity associated with cisplatin in pediatric patients with localized, non-metastatic, solid tumors)
- MESO -26.4% (provides update on scheduled FDA Advisory committee meeting)
- GTT -5.4% (delays 10-Q filing)
- BBBY -4.7% (lifts suspension of planned debt reduction; also says July comps were posiitve)
- SDGR -4.4% (stock offering)
- OCFT -4.2% (stock offering)
- WTRG -3.8% (stock offering)
- SSTK -3.7% (stock offering)
- NVAX -3.5% (expands partnership with AGC Biologics)
- SPT -2.8% (stock offering)
- ADAP -2.8% (files for $200 mln mixed shelf offering)
- PRFT -2.4% (convertible notes offering)
- AVYA -1.6% (stock offering)
- UPLD -1.4% (stock offering)
- FND -1.4% (stock offering)
- FTK -1.3% (delays 10-Q filing)
- WETF -1.2% (prices offering of $25.0 million aggregate principal amount of its convertible senior notes due 2023 in a private offering)
- LYFT -1% (unfavorable court ruling in California case)
- UBER -0.9% (unfavorable court ruling in California case)
Analyst comments:
- PAAS -5.6% (downgraded to Hold from Buy at Deutsche Bank)
- ZNGA -0.8% (downgraded to Hold from Buy at Berenberg)
Gapping up
In reaction to strong earnings/guidance:
- KFRC +14.3%, SCOR +13.4%, JCOM +13.1%, MESA +11.7%, NIO +9.6%, ICUI +9% (also signs long-term US distribution deal with GRFS), QRTEA +8.7%, KAMN +7.1%, DHT +6.1%, GSKY +5.1%, STAY +4.8%, ADPT +4.7%, IART +4.5%, LITE +4.5%, HUYA +4.1%, ADUS +3.6%, TME +3.5%, ADVM +3.2%, SPG +2.8%, CSOD +2.8%, MAC +2.2%, TCO +2.1%, WES +2%, CSPR +1.8%, ATCO +1.8%, NTR +1.7%, RUN +1.1%, IMOS +1.1%
M&A news:
- PFNX +63.4% (to be acquired by LGND)
- MVC +16.5% (to merge with BBDC)
Other news:
- EQ +22.1% (announces "positive" interim data with itolizumab in EQUATE study)
- PLX +11.1% (announced that the FDA has accepted the Biologics License Application (BLA) and granted Priority Review designation for pegunigalsidase alfa for the proposed treatment of adult patients with Fabry disease)
- CUK +7.4% (announces upcoming voyage cancellations for three Seabourn ships)
- ASPN +5.3% (secures broad injunctions against Chinese manufacturers; German court again finds Chinese aerogel products infringe Aspen's European patents)
- TME +3.5% (Tencent Music and Universal Music announce multi-year extension of licensing agreement)
- QGEN +3.3% (announces new commercialization and distribution agreement with HTGM)
- LH +3.3% (announced details of a no charge antibody testing program in response to federal health authorities' request to increase donations of COVID-19 blood plasma) ADVM +3.2% (positive interim data from Phase 1 Trial of ADVM-022)
- TECH +3.1% (announced the release of the SARS-CoV-1/2 Spike RBD LlaMABody Recombinant Antibody)
- BMY +2.5% (reports CheckMate -649, a phase 3 trial evaluating Opdivo (nivolumab) plus chemotherapy vs. chemotherapy, meets primary endpoints)
- QDEL +1.7% (says Maryland now allows for COVID testing even without symptoms)
- CFG +1.6% (Fed has decided not to change prior decision on DFAST ruling)
Analyst comments:
- MCRB +10.1% (upgraded to Buy from Hold at Jefferies)
- HSBC +4.3% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
- GOCO +2.5% (initiated with an Outperform at William Blair)
- FRT +1.1% (upgraded to In-line from Underperform at Evercore ISI)
Early premarket gappers
- Gapping up:
- PFNX +60.2%, EQ +23.1%, MVC +16.5%, KFRC +14.3%, SCOR +13.4%, MESA +11.7%, JCOM +11%, GSKY +10.6%, ICUI +9%, NIO +8.5%, WES +8.4%, QRTEA +7.4%, KAMN +7.1%, ADVM +6.4%, ADVM +6.4%, DHT +6.4%, HUYA +6%, CUK +5.6%, ASPN +5.3%, STAY +4.8%, IART +4.5%, ADUS +3.6%, TME +3%, QGEN +2.9%, CSOD +2.8%, TME +2.3%, BNTX +2.3%, TCO +2.1%, SPG +1.8%, NTR +1.7%, GO +1.5%, XPER +1.4%, QDEL +1.2%, IMOS +1.1%
- Gapping down:
- FENC -41.9%, MESO -27.6%, NGL -11.1%, INO -10.5%, IPAR -9.6%, OMER -9.1%, TLRY -7.9%, CNXN -5.7%, BBBY -5%, ZI -4.6%, SDGR -4.1%, ANGI -4%, BBDC -3.9%, IAC -3.8%, SSTK -3.7%, RAMP -3.6%, PRFT -3.5%, IFF -3.5%, QLYS -3.4%, NSTG -3%, ADAP -2.8%, WTRG -2.8%, KKR -2.7%, AVYA -1.6%, UPLD -1.4%, OXY -1.4%, FTK -1.3%, SSL -1%
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HelloFresh (HFG TH) +7.6%
- HelloFresh 2Q Adj. Ebitda Margin 15.8%, Sees FY Margin of 9%-11%
- Carnival Plc (POH1 TH) +4.6%
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Zalando (ZAL TH) +4%
- Zalando 2Q Adjusted Ebit EU211.9 Mln Vs. EU101.7 Mln Y/y
- Prosus (1TY TH) +2.4%
- UPM-Kymmene (RPL TH) +1.6%
- SES (SES TH) +1.6%
- TUI (TUI1 TH) +1.5%
- Infineon (IFX TH) +1.4%
- BP (BPE5 TH) +1.3%
- Alstria Office (AOX TH) +1.3%
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Vestas (VWS TH) -1.4%
- Vestas Brings Back 2020 Guidance as Q2 Earnings Miss Estimates