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Offices must make people 'want to go to work' post-COVID, says major landlord

Landlords and developers must make offices more attractive and pleasant places to work if the real estate industry is to combat the shift toward homeworking triggered by the COVID-19 pandemic, according to the CEO of a large listed landlord.

René Zahnd, chief executive of Swiss Prime Site AG, whose office assets make up the largest portion of its CHF 11.88 billion property portfolio, said that the COVID-19 pandemic has had extreme implications on consumer behavior and workforce mobility, and that "working from home is here to stay."

"[Offices] have to be as appealing as possible so that people really are fond of going to work," Zahnd said, according to an English translation of his words during a first-half 2020 earnings call. "Psychologically, they should want to go to work."

Homeworking has become widespread in recent months as governments around the world ordered lockdowns to delay the spread of COVID-19. The success with which many companies have adapted to homeworking has prompted several large multinational firms to offer employees the option of working from home permanently or more regularly.

Facebook Inc. CEO Mark Zuckerberg said up to 50% of the company's employees could be working remotely within the next five to 10 years. Other major multinationals that have taken a favorable stance on long-term homeworking include Twitter Inc., Box Inc. and Fujitsu Ltd.

Zahnd said office landlords face less severe problems in markets like Switzerland, where cities are relatively smaller and average commute times shorter. Echoing a point made by PSP Swiss Property AG CEO Giacomo Balzarini during his company's first-half earnings call Aug. 18, Zahnd said that workers in much larger cities such as London were more likely to prefer homeworking due to the average length and discomfort of their daily commute.

"Here in Switzerland, it's different," he added. "People like to go to work in the office."

The current level of homeworking across developed markets is unlikely to be sustained as the pandemic eases, said Zahnd. "We believe that a balance will be re-established," he said. "You can't do everything at home."

Swiss Prime Site owns a diversified real estate portfolio that includes offices, retail, hotels, assisted living, logistics, parking and other assets. The company also operates a large real estate services division.

The COVID-19 pandemic caused the closure of Swiss Prime Site's retail, gastronomy and car parking assets, said Zahnd, which led to around 500 requests for rent deferrals in the first half of the year, around 320 of which have been processed. Requests for lower, turnover-based rents were also granted, according to a company presentation.

The agreements left CHF 10.7 million of rent outstanding from the first half of the year, which accounts for 5% of expected rental income for the period. The company expects around CHF 20 million in lost rent for the full year 2020.

"It's actually fairly negligible, what we are going to lose," said Zahnd. The situation could change, however, he added. "It depends on to what extent the pandemic will evolve."

Swiss Prime Site is "really set up well" to withstand the COVID-19 impact, Zahnd said. Still, the company is worried about the impact of the virus on its hotel assets, he added.

"Our personal concern is really about the city hotels [and the] travel industry," Zahnd said, highlighting the sharp fall in traveler numbers through Zurich airport during the pandemic. "We always wanted to invest in city hotels, not in tourist regions, but when we decided to do that we had no idea there would be COVID-19."