Tewfik Sabongui talks how the past year has been for the team of Colliers International Czech Republic, the most interesting realisations and in which segments we have been active the most.
Q: How was this year for Colliers?
TS: The current year 2020 has been very different than any year we have ever had. I’m not talking about the revenues and market activities as such, which I will also cover, but the way how people had to interact and to manage their way of working, communicating and coping with each other and with clients. I consider 2020 a true test of companies and people alike. Businesses and companies in general and Colliers being one of them faced the huge challenge that literarily overnight we had to completely transform our way of working and communicating. When the first wave of Covid-19 broke out 2nd week of March, Colliers was amongst the very first, if not the first in our industry in Czech who allowed its employees to stay and work from home. Colliers puts enormous value in its people and our priority is their wellbeing, health and safety, so we immediately allowed everyone to work from home. Being able to do so, was bound to have a strong IT backbone, VPN’s hardware and software that allow the switching to that remote working mode instantly and without interruptions, but equally important was to make sure we stay close to our clients and provide them with quick answers to questions no one dealt with before.
Looking back on how we managed I’m very proud of the results. Our people were extremely responsible, committed and we kept very high morals, we managed to keep ourselves on top of the game despite all the challenges we had. Everyone with no exception continued to be very productive, innovative and most importantly connected, not only with clients but also among the teams, which in our industry is very critical.
Regarding the revenues and business results, and despite the uncertainty and slower decision making processes of the businesses in general, which was expected and is natural in every crisis, we are heading at having another fantastic year to finish ahead of us, and for a second year in a raw achieving again the best revenues and margins Colliers Czech has ever achieved. I put an enormous deal of trust, confidence and appreciation in my colleagues and our management who help me make things happen. In my own way, knowing this Covid crisis is happening and it is very actual, I’m happy for having been put into this situation to be tested in something which no one has experienced before and knowing we have managed it extremely well. It gives me lots of confidence and strength to manage whatever comes next and not only as an individual but as a whole company.
Q: In which segment did you do the most business or find the most activity?
TS: The most active segment we are having in 2020 is the industrial, logistics and warehousing segment. Possibly it being driven by the change of dynamics caused by Covid when it comes to e-commerce, but not only. Globalization in its previous set up and definition is ceasing to exist and will transform and evolve. The world learned a very tough lesson, that it can’t entirely rely on China as the sole global manufacturer and supplier of goods and strategically certain industries and supplies must be accessible locally or regionally. Hence certain industries and activities will be reintroduced. Other business segments that are active are Design & Build, Workplace Advisory, Investment, Valuation and Project Management. Unlike the financial crisis back in 2008, this crisis was not impacted by the lack of money; investors and businesses have the financial resources to buy and invest, and our problem remains the lack of supply when it comes to prime and high-quality assets. In Investment the slowdown was rather caused by the ban or restrictions of travelling, where foreign investors could not move and travel freely to inspect the assets, but over the last few years the local investors have become a significant purchase power from the total pool of investors and hence the activities were not hindered too much, but rather slowed down, where many investors chose to sit on the fence and wait how things will unfold.
Design & Build, Workplace Advisory and Project Management have set a new mark in that segment as many businesses started to re-evaluate their business models and concepts, allowing their employees more freedom to work from home, and in some cases even reducing the number of employees to come and work back from their offices. This is why we have seen also a surge in the number of sublease office space, which is expected to go above 100,000 sqm under offer in Prague alone by the end of 2020.
The flip side to that is that many companies understood the importance of restructuring and redesigning their offices and creating more social spaces and wellbeing zones where people could come, meet and socialize while also working. Amid Covid 19, we have seen that some of the biggest challenges employees had, were when they became socially cut off and living and working in the same environment, which impacted their creativity and eventually had a negative effect on their productivity when staying home for longer periods of time. Colliers conducted a global survey asking over 5,000 employees about their preferences related to work and where to work from and the majority of them came back with a clear preference and choice of working from the office, subject to having the opportunity to work 1-2 days from home.
Workplace Advisory, and Design are the two service lines which deal with such type of needs, subject to fully understanding the existing workflow and requirements on which basis recommendations and suggestions are made, not only to transform the office space into a more accommodating space, but also to increase the productivity and creativity of the teams, whilst offering the wellbeing and socializing benefits and overall saving unnecessary costs.
Once the above plans and studies are completed our Build service line and / or Project Management team can work with our clients on tailor made and turn key solutions, where clients do not need to worry about anything until the completion and handover of the project, guaranteeing throughout the whole process to achieve the best prices and quality without delays and on time.
Q: Have you made any interesting transactions? What kind? (office, industry, etc.)
TS: It is not easy for me to limit myself here to choose which projects I should mention, simply because we really had many and many very interesting. I will try to highlight some of them, and I’m doing unjust to many others, but I’m capped by the number of words you can publish.
My choice of examples to follow is made to give your readers a good example of how the various services together add more value to clients, than focusing on a single service line in itself, but I will also make one exception and reference to that. Four of our service lines (Office Agency, Workplace Advisory, Building Consultancy and Design & Build) joined forces and worked on a project for Mercedes Benz Parts Logistics Eastern Europe (MBPLEE). This project won the prestigious ABSL Diamond Award for Innovative Workplace achieving the best score in categories such as innovativeness, impact on business, the success of implementation and employees’ feedback.
Other examples are Alcon Pharmaceuticals; Jacobs Douwe Egberts (JDE) where for the very first time ever the whole design was developed, discussed, and finally approved by the client online, and the multinational cybersecurity provider Fortinet.
Wrike which was transacted by our Office Agency I consider also interesting, not only because of its 5,000 sqm size but for being a new entry and a new comer to the Czech market which required a lot of organizational and logistics work to be able to accommodate them temporarily until they moved into their new premises to maintain their time schedule.
ZF Engineering, Clifford Chance, Ferring, HERO, Grip Digital, Nestlè or UniCredit Bank are other great examples where more service lines have intensively worked close together and with the clients to provide them with the solutions they wanted and needed. The beauty of what we do is that we worked on small, medium and large projects and sizes, yet each of them was unique in itself.
One last example I’m happy to share was the overall activity of our industrial team this year where we will have worked alongside over 20 clients and by year-end, we expect to have transacted over 200,000 sqm in I&L with many transactions ongoing showing a great pipeline for 2021.
Q: Colliers was also very active in investment, not only in the Czech Republic. In Romania, the CEE team completed one of the largest transactions this year, the sale of NEPI's office portfolio to AFI Europe. Can you comment on this representation or transaction? What is the situation in the Czech Republic?
TS: Yes, that is very true. Our Colliers CEE businesses are very much connected, we share many clients across our region and on larger assignments we work as one team to leverage our relationships and capacity. Luke Dawson who heads the CEE region and Investment says and I quote “Many clients now view CEE as one market with several sub-markets, so we have adapted our operations to match this approach and provide seamless coverage. We have a very strong investment practices and presence across the whole of CEE”.
Regarding our Czech market our Investment team is especially proud of this year’s Technology Park Brno deal and the sale of other assets such as a 20,000 sqm manufacturing unit in Most on behalf of local developers to an international buyer and brokering the sale of the 25,700 sqm Grade A City West office building to CMN. Nevertheless, whilst investment volumes have cooled off, a number of off-market transactions are on-going. We anticipate there may be more sales of distressed assets in 2021 across Europe as some sectors – especially parts of the hospitality and retail sectors will continue to struggle as a result of the impact of Covid and the subsequent reduced demand from consumers, but equally so I expect a much quicker turn around once the Covid situation gets under some control.
Answering your question about our Romanian transaction, the sale of NEPI Rockcastle’s office portfolio to AFI Europe is the biggest deal on the CEE market completed in 2020 worth €307 million. On this particular transaction we leveraged our teams in Poland and Czech to draw in experience and relationships that helped us bring the transaction to completion. Our Romanian colleagues are very proud and happy and we are equally proud of them and 2020 will be never forgotten and obviously not for the Covid part of it.
Q: How do you evaluate the Czech office market? The big topic these days is the home office - will employees return to the offices? Colliers conducted an international survey on the topic - can you state its main findings? (80% of employees want to go back to the offices).
TS: As mentioned earlier, Colliers conducted a global employees survey, which result was very clear. The majority of employees prefer to work from their offices subject to having an option of 1-2 days a week working from home. Regarding your question about what will happen with offices in general, the short answer is, offices will continue to be in demand and any current drops are just a reaction to Covid 19 but do not constitute a general trend to continue. But to answer this question properly, we would need to go more in depth and not sure how much we can cover here. I will try to summarize. It all depends on the nature of your business and operations to begin with, for example an IT company which employs mainly programmers, is it critical for them to work from an office? Probably not, they can easily work remotely. A service-oriented company, where employees are client facing and they also need to communicate internally, can they work only remotely? Possibly not; over time their productivity and motivation will drop, and people will struggle with their own professional and personal development. People need to interact and socialise, we also need to be able to separate our work from our personal lives, not to mention the many challenges people face when working from home for longer periods of time, starting with not having enough space, having children around, lack of proper furniture, etc., so having a clear destination is and will continue to be critical and important. In general, the highest cost in any company’s operational expense sheet are the salaries, not the rent of the office space, which usually can be anything between 3-8% of the total cost. Hence reducing the office space or completely abolishing it, will not constitute a major impact on the cost side of the business, but the last thing any company and employer wants is, not to lose its best talents. If some businesses are significantly reducing their office space today, it’s probably something they were planning to do already some time ago and Covid was a catalyst that has put it into motion. Not only that but Covid forced the businesses to test it the hard way and many found out, it did work and many old concerns and questions got answered, but let’s not forget, this is still a very short time span and it is too early to make firm conclusions. We also don’t know how long Covid 19 will drag along and possibly any future similar pandemics could trigger and require the same procedures, which means offices will need to keep social distancing awareness as part of their office layout, which requires having enough space for the same or reduced amount of people.
Q: Will the layout of offices now change in any way? What is the experience of your design and build department? Can you recall the most interesting realizations of Colliers from that year?
TS: Yes, the office space layout and design will change as well as its functionality, but it has been already changing for some time prior to Covid 19. As mentioned earlier, wellbeing and creating different zones for socializing, for teams to interact but equally so to have zones for focus areas are part of such change. We have delivered many interesting realizations in 2020, out of which we can pick Alcon at BB Centrum, Mercedes Benz Parts Logistics Eastern Europe at Aspira or Fortinet at Explora.
Q: Which market segments have been/are most affected by this year's
Covid-19 pandemic and which on the contrary have survived best?
TS: The segments which obviously suffered the most in 2020 are hospitality, retail with the exception of retail parks and offices. We expect to see the real impact of the Covid 19 crisis at the end of the year and throughout 2021, which is only when we will better understand which segments will have survived the best. On the other hand, I do not want to sound too pessimistic here, I also expect with the latest announcements of Pfizer and Moderna and their vaccines and the very high success rates exceeding 90% at the time of doing this interview, that once that is confirmed and launched, a lot of the pressure will be removed, confidence and hope will prevail and things will get back to a better normal at a much faster pace than we today think. I do see the light at the end of this tunnel.