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Commercial firms best placed to ride out crisis

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Paul McNeive

Paul McNeive

Paul McNeive

There is a lot of head-scratching going on around boardroom tables as the Covid-19 crisis begins to bite.

More normal business conditions will return, but the question is when and, in the meantime, how much business will be lost?

Many firms will avail of the National Covid-19 Income Support Scheme, which provides a temporary wage subsidy up to 70pc of an employee's income, to a maximum take-home salary of €38,000 a year.

But the scheme is capped at a net €350 a week for salaries up to €76,000, leaving senior staff and directors facing shortfalls. Many senior directors have basic salaries well in excess of €100,000, which, with profit shares, packages above €250,000.

Employers are expected to top-up employees' salaries and can only avail of the scheme once their turnover drops more than 25pc below normal levels.

The aim of the subsidy is to try to prevent redundancies, so productivity can recover as quickly as possible.

Some estate agency firms have already taken a more defensive position and there are reports of firms implementing salary cuts of 20-30pc, four-day weeks, and lay-offs. Some of these I have verified.

These are largely confined to residential agents, or commercial firms incorporating a residential business. The crisis has had a far greater and more immediate impact on the residential business, where margins are much lower than in commercial property.

Commercial markets take a longer-term view, and firms always the traditional safety net of income from the management departments, valuations and advisory work.

A concern now, given the scale of the shutdown of, for example, shopping centres, is if tenants stop paying rent, will management fees suffer?

The large international estate agency brands appear to be less affected so far. They have deeper pockets and, I suspect, their income may not yet have fallen by 25pc.

Indeed, many larger firms could have up to a year's income already logged as "work in progress" - recurring fees such as management and valuations, plus transactions either signed and not closed, or agreed and not signed.

The big worry is how much of the latter will fall through? Agents tell me most large deals that were agreed are progressing, albeit slowly, but some purchasers are saying they will not sign until the crisis has passed, and some are looking for price cuts. The next month will tell a lot.

Architects and engineers seem to be faring better, for now at least. Kathryn Meghen, CEO of the RIAI, said that while architects remain busy, many members are experiencing challenges, particularly uncertain project pipelines and cashflow shortages.

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John Brennan, managing director of ORS engineering consultants, with 50 staff in four offices, says business is "going well". The firm has nine service lines and while work is drying up for building surveys for example, many areas are unaffected, such as fire safety certification and the assigned certifiers role, and many staff can transfer.

I believe the markets, once reopened, will recover more quickly than most expect. In the meantime, the firms will do what they must to survive, and hopefully protect the maximum number of jobs and employee goodwill along the way.


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