Ahmed Basha

The coronavirus outbreak (COVID-19) An Occupier Perspective Research Report I Jones Lang LaSalle Incorporated | March 13th, 2020 2 | The coronavirus outbreak (COVID-19) This document highlights the impacts and implications Corporate Occupiers should consider when preparing, responding and acting upon the coronavirus outbreak. It is based on relevant key facts from vetted sources. © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. The coronavirus outbreak (COVID-19) | 3 Contents In this report: A challenging environment for corporate activity 4 What are the key facts relevant for occupiers? 5 What is the impact and implications of the coronavirus outbreak for occupiers? 6 How can occupiers respond to the coronavirus outbreak? 7 What are the six things to address now? 9 Where can you find reliable sources of information? 11 © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. 4 | The coronavirus outbreak (COVID-19) A challenging environment for corporate activity A great deal of uncertainty is created around the coronavirus outbreak. The outbreak of COVID-19, now declared as a global pandemic, and its rapid spread across the globe has taken many by surprise and businesses, communities and governments must now confront the reality of the seriousness of the situation. There is a wealth of information (and mis information) to be consumed on a daily basis and in such a fluid situation the facts and consequences are changing rapidly. While individuals and businesses remain focused on health and well-being, this paper will highlight the potential implications for real estate. Our current base case is guarded. The further the outbreak widens and the longer it persists, the greater the chance of a more prolonged impact on the global economy and, by extension, real estate markets. The Real Estate sector has a major role to play to alert, contain and deal with the coronavirus outbreak. First and foremost the coronavirus is a serious human health issue – and a tragedy for those impacted. The increasing rate of COVID-19 transmission and consequent health impact is also driving a range of economic and market impacts across the world and more intensely in specific geographical clusters. One of the key questions facing companies is the duration of impact on their business activities, operations and real estate strategy. With the outbreak of any new virus comes a high degree of uncertainty. Businesses are likely to delay real estate decisions, slow down their activities and adjust their operations, and potentially significantly impacting their workforce movement. Disruption to everyday life may be severe. We advocate Preparedness, Protection, Monitoring and Communication as the virus continues to spread. Many companies are currently in the midst of COVID-19 planning and developing mitigation strategies. The protection of your employees and your partners, and the community is of course the first priority. The coronavirus will adversely affect sentiment – among corporates, developers and investors and is likely to reduce market activity and liquidity. The global coronavirus outbreak may be a turning point for our industry, a major spark that reveals whether organizations are ready to respond rapidly to a major crisis, with unexpected workplace changes and unmeasurable impacts at this point in time. Despite the existence of business continuity plans, coronavirus has exposed gaps. The depth of the impact on economies, markets and sectors will also be linked to wider cyclical and structural resilience, strength or weakness. “The best time to prepare was last week. The second best time is right now.” © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. The coronavirus outbreak (COVID-19) | 5 What are the key facts relevant for occupiers? As of March, 13th, 2020 we see a range of different levels of severity at country level and organisations are needing to act according to government, local market conditions and obligations: • All sectors are impacted, with several seeing more severe consequences to business activity through 2020 (Healthcare, Energy, Aviation, Tourism and Hospitality being the most affected – Consumer Goods, automotive and Manufacturing sectors facing reducing demand and supply chain disruption – Resilient sectors like Pharma, Biotech and some Tech and Services) • Strict restrictions are currently only applying to major outbreak zones with confirmed community transmission • Measured restrictions in vulnerable clusters (access, movement, hygiene, travel restrictions) are being applied in a controlled and measured way • The slowdown and delays in trade flow will continue to cause disruption in the short term to consumers and businesses • Increasing number of facilities closures (offices, factories, retail, hospitality, public buildings…) are currently limited to major outbreak zones • Several scenarios for how COVID-19 are emerging and will be evolving. • Micro clusters of outbreak with declared cases of coronavirus with employees are emerging and forcing immediate actions and measures. • The impact on the volume of real estate investment and transaction deals should be limited if the outbreak dies in 3-6 months • Corporate organizations are slowly ramping up to address the internal and external impacts of the outbreak • • We expect a continued correlation of economic and business impact with severity of health impact and ability of health systems to contain and respond at a country level Cross-sector impacts due to logistics challenges are already identified. Supply chain disruption will continue to evolve with the severity of the outbreak but may cause disruption to global supply chains, combined with a slowdown in global transport. Inventory levels in warehouses and distribution centers may fall and it could be difficult for companies to replenish their stock • Communications with employees is so far addressed at a HR level addressing access to facilities and remote working policies, hygiene measures and travel restrictions • Limited assessment of the economic impact of the outbreak for Corporate Occupiers © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. 6 | The coronavirus outbreak (COVID-19) What is the impact and implications of the coronavirus outbreak for occupiers? Corporate Occupiers must remain nimble and react quickly to this fast-changing situation. We recommend a focus on the four areas where the implications loom large: Business Operations, Workforce, Finance and Communications: and facilities / management preparedness will all become increasingly important. • Business Operations: • Preparedness is critical. Despite the existence of business continuity plans, for many firms the outbreak has exposed gaps for many businesses. Business Operations may be impacted, and consideration should be given to changing or closing operations in affected areas and transferring business to new geographies or knowledge to key employees. • Supply chain disruption should be anticipated and counteracted. Supply chain visibility is also a challenge across industries and one that corporates should seek to improve. Manufacturing facilities may face immediate and lasting interruption as will product distribution channels. As a result, businesses are addressing logistics, labour costs, productivity and hedging risks across supply chain locations • Strategic decision-making processes will face interruption. It is unclear at present when we will know the extent and the duration of this impact; in the meantime, corporates will be fast-tracking contingency planning measures, to deal with a potential prolonged period of disruption. Finance: • The financial impact on corporates will be multifaceted. Businesses are required to finance the emergency response and all mitigation and resilience costs around planning, solutioning, training and recovery from the outbreak. Additional costs for hiring should be considered – the availability of temporary replacement workers and other substitute resources may be difficult. The cost of distributed technology investment and telecommuting tools to enable remote working where feasible should be evaluated. • Deploying new technologies (e.g. PropTech) and solutions (MedTech) to control the level of infections of employees will also require capital investment. Not all investment however will be recoverable but will leave a legacy of improved and more robust operational measures and systems. Communications: Workforce: • People protection and wellness are the priority. Wellness needs to be put at the forefront as a basic corporate duty of care to employees and to ensure workplace productivity. Contingency plans need to be implemented for employees unable to commute, travel or occupy corporate locations, and access to sites for visitors, suppliers and the public needs to be reviewed. Social and professional ‘distancing’, absenteeism and illness are likely to cause disruption and present a potential impediment to operations and sales. Your buildings can also act as barriers to contamination. In the longer term ‘building health’ including building ventilation, air filtration, cleaning, © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. Remote working is key to ensure continuity of your activities – difficulties communicating with colleagues and clients, IT system capacity issues and the risk of workforce shortages will also affect productivity. Mitigating policies, procedures and an increasing adoption of effective remote working will help reduce some of this impact. • Communication is essential to provide transparency. Establish protocols and guidelines to communicate information to employees and business partners on your infectious disease outbreak response plans • Avoid miscommunication and ensure the appropriate dissemination of information and avoid ‘fake news’ or ‘infodemics’. (An ‘infodemic’ is an overabundance of information – some accurate and some not – that makes it hard for people to find trustworthy sources and reliable guidance when they need it.) The coronavirus outbreak (COVID-19) | 7 How can occupiers respond to the coronavirus outbreak? The corporate response to COVID-19 needs to start immediately and we advocate Preparedness, Protection, Monitoring and Communication. This is an ongoing process and priorities will change over time as businesses review short and long-term decision-making strategies. Your Integrated Business Continuity Management (BCM) must enable your enterprise resiliency to address the following key drivers: changing Business Models, changing Threats, changing Environment and continuously assess Risk priorities. To When Immediate Next 1 to 2 Weeks: 99 Preparedness 99 Protection 99 Communication Short Term 3 to 4 Weeks: 99 Monitoring and readiness Medium Term 1 to 3 Months: 99 Continuity Long Term Over 3 Months: 99 Resilience sustain your workplace continuity, you must mobilize resources and assess the situation, prepare your plan and recommend actions, and execute your plan and improve it continuously. The following outlines a phased approach to a tactical corporate response, from initiation to embedding resilience, with some examples of specific actions. For Occupiers, these are the responses you should consider: How • Activate (or create) a business continuity plan for real estate operations and form a global response team and ensure alignment to enterprise Risk Management Response. • Assess workplace continuity and enforce immediate social distancing • Understand the requirements to achieve remote work scalability and deploy homeworking at a large scale to contain and mitigate the spread amongst your workforce • Build data-analytics capabilities to enable real-time analysis of how changing threats might affect an organization. • Prepare workplace continuity based upon aggressive, moderate and conservative “What if” scenarios • Build strong communications protocols, guidelines and resources • Streamline decision-making processes to ensure rapid response and enable effective communication to ensure business continuity. • If needed, close facilities (or parts thereof) immediately, identify alternative working locations and deploy a remote working plan. • Enforce strict hygiene and cleaning measures on site and consider waste management and bring in more outdoor air in buildings with heating and ventilation systems (or opening windows in buildings that don’t) to help dilute airborne contaminants. • Monitor and assess the situation continually and adjust your plan in accordance. • Accelerate mobile and remote working enablement programmes as needed. • Focus over the short term on operational management of real estate and mitigation processes for critical sites. • Ensure that adequate supplies are maintained – consider any potential disruption to supply chains. Consider: • Continuity of mobile and remote working enablement programs. • Supply chain disruption impacting operations. • Increased hesitancy and cautious real estate decision-making. • Reduction of face-to-face client interaction – plan for alternative means of contact and engagement. • Successful acceleration of mobile / home working practices a proof of concept and a longer-term cultural shift. • Supply chain diversification and enterprise footprint optimisation. • Carbon emission reduction and reduced air travel could shift enterprise perceptions on sustainability and the ‘Responsible Enterprise’. • Occupiers will increasingly seek high-spec real estate with a view to better provide a safe and healthy workplace. • Increase in workplace technology adoption – sensors, air quality and occupancy indicators. Faster deployment and adoption of PropTech and MedTech to enhance workplace safety. © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. 8 | The coronavirus outbreak (COVID-19) Beyond workplace facilities, all industry sectors are impacted and should be prepared to activate a business continuity plan. The access and occupation of sites could either be critical to maintain the continuity of the business or service (healthcare facilities, grocery stores, production and manufacturing sites) or less critical as the activities can be stopped or transferred to alternative places (outside the cluster of the outbreak) and on-line (virtual teaching, e-commerce): Commercial environments – shopping centers, retail facilities and amenities (restaurants, commercial units) affected by public access need to follow strict hygiene and protection measures to protect visitors and consumers. Public and government facilities – public buildings, schools, nurseries and universities are implementing radical measures to limit access as far as closing down temporarily to restrain contagion amongst members of the public, patients and pupils. Health and wellness facilities – hospitals and retirement houses, medical centers and laboratories are minimizing access of patients and visitors to reduce the risk of transmission of the virus to fragile populations and to protect healthcare workers. The surge demand in healthcare facilities will require interim/ swing spaces to deal with the increase of patients and isolation/quarantine needs. Hospitality facilities – hotels, leisure centers and entertainment places are coming under major restrictions and force to close down facilities, and postpone or cancel events. Manufacturing and production facilities – production lines and logistic centers have to maintain continuous activities to avoid supply chain failures. Small production units will also be affected (for essential goods like bakeries, fruit and vegetables, meat suppliers). Transport facilities – public transport, ports and airports need to have a minimum level of services and operations to maintain a normal life across cities, countries and communities. Similar measures of health, wellness and hygiene need to be put into place to protect employees, patients and visitors, and maintain daily operations, services and activities in every facilities you manage. © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. The coronavirus outbreak (COVID-19) | 9 What are the six things to address now? Your readiness to respond and deal with the coronavirus outbreak will be critical over the next weeks, whatever the evolution of the crisis. Preparedness should come first. It should be combined with real time data analytics to enable the right decision making. The activation of your plan may kick in whenever it is necessary combined with sharp communications and protection of your employees and stakeholders. Business continuity would be sustained with the right plan and a resilience phase will close your plan towards a full recovery of your business activities. 1. Preparedness is an imperative and it must be done asap – we have a small window of opportunity to get ready and plan for the best and worst case scenarios: • Use the available time you have now to plan and anticipate the impact of the outbreak and your role as an Occupier • Plan it in details, dedicate time, human resources and expertise to it • Continuously update your plan and refine it • Bring an expert and diverse team together • Get ready to take decisions and act upon them quickly (24h to 48h) 2. Record and monitoring is necessary and essential to track the evolution of the outbreak, understand where you are in the chain of the outbreak and know the facts: • Keep a track of the numbers and update them daily • Isolate cases and deal with incidents (sparks of events) even if it may not feel necessary right now • Enforce social distancing and home working measures as soon as possible • Be transparent about it with your management – this is not only a Real Estate matter, it is a humanitarian matter 3. Readiness to act upon a major outbreak affecting your organization is key to step in at the right time, implement measured solutions and ensure your business continuity: • Get ready to respond now as if the worstcase scenario hits your business in the next hour • Pull in the right talent and bring diversity in your team (FM, H&S, Risk, HR, Communication, Supply Chain and Procurement, Finance…) • Measure your actions and be reasonable and realistic in your business continuity © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. 10 | The coronavirus outbreak (COVID-19) 4. Communication is essential to provide transparency, reassure your engagement to your leadership (and shareholders), your employees (and visitors) and your stakeholders (partners, suppliers) as well as the community: • Plan carefully your messages and measure each word to avoid misunderstanding. • Be fully transparent with your actions and reported numbers and results, but be measured • Report achievements and success even small and moderate • Validate and get approval for all official and non-official releases 5. Protection of your people, employees, clients and the community are your number one priority. This is your ultimate goal. People come first and will remain your key priority throughout the outbreak until the last case is isolated: • Focus on the health and wellbeing of your people, your clients and partners and the community to reduce exposure to the virus. • Plan for measures which can be deployed incrementally, and immediately if required, in accordance to the level of the outbreak in each of your facilities © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. • • Implement measures which are easy to follow and deploy these measures across your portfolio (illustrative posters with simple messages, short instructions…) Provide an easy path to get access to the content and a simple step by step approach for your local teams 6. Continuity and resilience of your business is crucial to maintain a normal level of activities and minimize disruption and interruption. Workforce mobility can play a part in your workforce resilience: • Activate or create an emergency remotework plan to allow your employees to work from home • Assess which jobs and activities could be affected and transferred outside of your physical office, put on hold for a given period of time. • Audit your IT (hardware and software) to launch and maintain activities outside of your physical office. • Set up protocols to maintain communication channels between employees and ways to measure performance to sustain your level of activities • Consider technological and medical solutions to help your business recover from the coronavirus outbreak The coronavirus outbreak (COVID-19) | 11 Where can you find reliable sources of information? Few but reliable sources on numbers of cases, mainly from the World Health Organization (WHO – https://www.who. int) and the Center for Disease Control (CDC – https://www.cdc.gov/). Official guidances on getting your workplace ready for COVID-19 (from the WHO – https://www.who.int/docs/default-source/coronaviruse/getting-workplaceready-for-covid-19.pdf) and the CDC’s Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19), February 2020 – https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/ guidance-business-response.html?CDC_AA_refVal=https%3A%2F%2Fwww.cdc.gov%2Fcoronavirus%2F2019ncov%2Fguidance-business-response.html The following list of sources could help you to better understand the coronavirus outbreak and find guidance on how to address it. 99 World Health Organization (WHO – https://www.who.int ) 99 Center for Disease Control (CDC – https://www.cdc.gov/) 99 Clear guidance on how to manage Infodemics (https://www.epi-win.com/about-epi-win) 99 OSHA’s Guidance on Preparing Workplaces for an Influenza Pandemic https://www.osha.gov/Publications/ influenza_pandemic.html 99 IFMA Coronavirus Preparedness Research Center (www.ifma.org) 99 McKinsey’s Facts and Insights and Implications for Business – https://www.mckinsey.com/business-functions/risk/ our-insights/covid-19-implications-for-business 99 WHO’s Getting your workplace ready for COVID-19 – https://www.who.int/docs/default-source/coronaviruse/ getting-workplace-ready-for-covid-19.pdf) 99 EPI-WIN’s Guidance on Infodemics (https://www.epi-win.com/about-epi-win) 99 HBR’s Remote Work Plan – https://hbr.org/2020/02/whats-your-companys-emergency-remote-work-plan 99 Washington State DOH: https://www.doh.wa.gov/Emergencies/Coronavirus 99 Communicate with your employees – CISCO – https://www.shrm.org/hr-today/news/hr-magazine/1116/ pages/communicating-with-employees-during-a-crisis.aspx and https://blog.hubspot.com/service/crisiscommunication-plan 99 Your Building Can Make You Sick or Keep You Well, Harvard University: https://www.nytimes.com/2020/03/04/ opinion/coronavirus-buildings.html?action=click&module=Opinion&pgtype=Homepage © 2020 Jones Lang LaSalle IP, Inc. 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