General/Topical Questions/COVID

Question 1

Tell me about something you are currently working on?

Answer 1

• Disposal of a portfolio of 7 light industrial and logistics assets in Poland
• Developer looking to proceed with disposal to provide the funds to reinvest into their development pipeline
• Prime industrial yield in Poland is 4.25% and there had been a large influx of international capital looking to enter the sector

Question 2

What is the government doing to assist occupiers impacted by Covid-19?

Answer 2

• Business rates holiday for the 2020/21 tax year for those that operate in the retail, hospitality and leisure sector
• Business rate reevaluation will no longer take place in 2021
• Coronavirus Act 2020 prevents landlords from forfeiting leases the non-payment of rent until 30 June 2020
• Job retention scheme allowing companies to furlough staff
• Business Interruption Loan scheme for SMEs, allowing them to borrow up to £5m for a period of up to 6 years and ‘bounce back loans’ for small businesses

Question 3

Tell me about an interesting article you have read recently?

Answer 3

• Modus article about the replacement of flammable cladding on tower blocks following the Grenfell Disaster in 2017
• Since the disaster, cladding containing aluminium composite materials has been identified on 205 building, however, only 24 have had it replaced
• High complexity in establishing liability for remedial works between the developer, contractor, leaseholders and insurers

Question 4

What guidance has the RICS issued in response to Covid-19?

Answer 4

• Issued “Impact of COVID-19 on valuation” statement
• Guidance for professionals (e.g. Guidance on valuation, guidance on PII)
• Support and guidance for SMEs

Question 5

Describe a recent piece of case law that is relevant to the industry?

Answer 5

Burgess v Lejonvarn 2020
Found that professionals who provide professional services gratuitously and without a contract owe a duty of care in tort to act with reasonable care and skill. But they are not liable for the work they do

Question 6

What have the Bank of England announced that LIBOR will be replaced with at the end of 2021?

Answer 6

SONIA (Sterling overnight index average)

Question 7

What CPD have you undertaken since handing in your submission?

Answer 7

Attended a session covering the updates to the Red Book Global Standards - 2020. These include:
• PS 1: Introduction of the output of AVMs as a written form of valuation
• PS 2: “Professional skepticism” when reviewing information and data
• VPS 3: Emphasis on the difference between valuation approach (i.e. overall manner in which the valuation task is undertaken) and the method (i.e. the particular procedure used to assess or calculate the result)
• VPS 3: Emphasis on the importance of discussing sustainability and environmental matters when valuing interests in real estate
• VPGA 8: Valuers should be aware of sustainability features and the implications the could have on property values (e.g. flooding, energy efficiency, accessibility). Should only influence reported values if market evidence would support or valuers believe market participants would reflect these matters in their bids

Question 8

What safety precautions are you taking to protect yourself, clients and third parties during Covid-19?

Answer 8

Following government guidance, 2m social distancing, pre lockdown - asking apps about health, PPE.

Question 9

How have you as a team adapted your services to cope with Covid-19?

Answer 9

• Fully remote - provided full service with clients
• Marketing - using video to replace viewings & home demonstrations. (Occasional virtual viewings)
• Focused our attention to consultancy - providing comprehensive research.

Question 10

Are you aware how RICS are responding to Covid-19 for members?

Answer 10

 Information is updated regularly on the RICS website, offering support to members & public.
 RICS presently offers free unlimited CPD, advice to professionals & support for business owners

Question 11

What piece of legislation has been passed relating to Covid-19 and what are the effects?

Answer 11

Coronavirus Act 2020:
 Support for businesses to pay wage bills, and to provide grants and loans to businesses
 Temporary bans are imposed on landlords from evicting residential and commercial tenants for the non-payment of rent for at least 3 months

Question 12

As restrictions are lifted, how is your firm managing health & safety

Answer 12

Use of virtual viewings where possible
Detailed viewing and key handling protocols have been drafted and these must be followed in full
Adequate staff training on the use of PPE & social distancing.

Question 13

What does the RICS require a valuer do because of the potential restrictions on information/inspection caused by COVID-19?

Answer 13

• Where there are changes to the way RICS regulated members normally proceed with instructions, this must be agreed with the client and any agreed changes must be recorded.
• RICS regulated members should make detailed file notes to support the rationale that underpinned the changes.
• Any restriction of information and/or the ability to inspect and investigate must be made clear, agreed with the client and clearly stated in the report.
• All affected terms of engagement must be amended to confirm this.
• These requirements also apply to any valuation assumptions that are made as a consequence of restricted access and/or valuation information. If the regulated member considers that it is not possible to provide a valuation on a restricted basis, the instruction should be declined.

Question 14

How does the RICS advise you consider market uncertainty with re. the current COVID-19 market conditions, and what is recommended you included in your report for explanation?

Answer 14

• Individual markets may react differently to the COVID-19 outbreak, aftermath and further “waves”. RICS regulated members will consider the circumstances in which a material uncertainty declaration is appropriate. RICS regulated members should be fully aware of VPGA 10 and VPS 3 within the RICS Red Book Global Standards in the decision-making process. It’s worth noting that VPGA 10 refers to ‘relatively unique’ market factors and, for example, ‘an unprecedented set of circumstances on which to base a judgment’. This may be of particular note when considering the impact of later phases or “waves” of COVID-19, compared to the initial outbreak.
• Whether material uncertainty exists remains the decision of the RICS regulated member. They should include a sound rationale to explain the decision-making process and this should be recorded for future reference.

Question 15

I see that you have been working towards your APC for 4 years. Why is this?

Answer 15

I have had training in a number of different areas since I started the APC and now have the opportunity to sit
the APC. The quality of the training is what matters, not the time spent doing it.

Question 16

What is RICS Futures, and what does it outline?

Answer 16

o 2020 edition issued prior to COVID-19 outbreak

o Outlines RICS action agenda to keep up in a changing world

Question 17

Where is MODUS published?

Answer 17

Now published only online

Question 18

When was COVID declared a Global Pandemic?

Answer 18

o COVID-19 declared ‘Global Pandemic’ by WHO March 2020.

Question 19

What does the Code of Practice for commercial property relationships during the pandemic apply to, until when, what does it provide, and what the 3 key requirements?

Answer 19

• Published June 2020, applies to commercial property until 24 June 2021.
• Provides voluntary best practice for landlords and tenants in relation to rent and service charge payments and arrears.
• Key requirements:
  o Tenants who can pay in full should, or otherwise pay what they can, providing evidence to the landlord to justify any requests.
  o Parties should work collaboratively and reasonably to renegotiate rent or other mutually acceptable solutions.
  o Service charges should be reduced where costs have decreased due to lockdown.

Question 20

How has COVID effected the UK economy, what is the fiscal response (5), and how has inflation remained low/what is the BOE hoping will not be necessary?

Answer 20

o Largest hit to UK economy ever seen – initial lockdown caused 26% GDP fall, a larger decline that almost any other major economy.
o Unprecedented fiscal response has limited damage but will present a future challenge, with budget deficit set to hit highest level since WW2:
 All time low 0.1% interest rate
 £210bn borrowed in first 6 months - almost 4x total borrowing in entire previous financial year.
 Interest rates cut to all time low of 0.1%
 £100bn of asset purchases and further (at least) £150bn in 2021.
 Total quantitive easing program currently £745bn.
o Inflation likely to remain low in short term (temporary tax cuts + weak demand), if Brexit deal not reached and UK left to trade under WTO rules, economic growth would be weaker over both the short and long term.
o Low interest rate environment necessary to support 2021 economy + further QE. However, BOE hoping negative interest rates not necessary, as likely to be counterproductive, given potential adverse impact on bank profitability which could restrict lending.

Question 21

What is the economic ‘bright spark’ of 2020, and will it continue in 2021?

Answer 21

o Consumer spending 2020 ‘bright spark’ – but not expected to continue in 2021 – job losses are likely to be concentrated in lower-earning sectors, and low-income households tend to spend a higher share of income.

Question 22

When was Brexit, and what are the 2 major concerns of the recent trade deal?

Answer 22

o Brexit on 1 Jan 2020.
 UK and EU have agreed trade deal:
• Tempting to agree with Boris Johnson that “Brexit is done”.
• However, as we have seen in the first weeks of 2021, companies are finding the adjustments difficult to navigate with delays at the border already being reported.
• The deal does not touch financial services, a vast part of the UK economy and highly relevant to many office occupiers.
• Aim to sign a co-operation agreement to cover financial services regulation by March.
• The market moves faster than policymakers, however, and the financial sector has already implemented plans to continue working with EU clients by gaining regulatory licences in EU jurisdictions and moving certain operating functions there (already 7,000 jobs).

Question 23

Outline the current office market conditions in Newcastle (prime city centre/OOT rents, yields take-up/supply).

Answer 23

 Q3 2020 office market:
• Prime city centre
o Prime rent of £26 psf – set by Newcastle Helix in 19,000 sq ft letting at Lumen to Homes England.
o 5.75% prime yield, marginal drop from 2019 (5.5%)
o Prime multi-let city centre with 5 year WAULT: 6.5% in 2019, now probably closer to 7-7.5%.
o Highest quarterly take up since Q3 2018, bucking national trend of not having a quarterly drop in office take up.
• Out of town prime
o Prime rents of £16.50 psf
o Prime out of town: 6.75%-7% in 2019, probably marginally higher now, say 7-7.5%.
o Out of town quarterly take up well above 5 year average
o Grade A supply continues to dwindle (Quorum/Cobalt suppl at c. 400,000 sq ft). Above average take-up figures have been bolstered by the change in market sentiment due to the global pandemic.

Question 24

Discuss the eating habit shift

Answer 24

• Industrial general: Eating habit shift – pubs/restaurants closed, driving expansion of Dark Kitchens.

Question 25

How do logistics prime rents compare Newcastle to London, and yields?

Answer 25

 Prime rent (Big Box) of £5.50 psf, v UK average of £8.15 psf
 Range of £5.50 – £7.50 psf outside London/South East (£17.50/£15 psf).
 North East prime yield of 5%, ranges between 4.5% - 5.5% outside London, and 3.85% in London.
 Could extrapolate prime investment capital PSF from above.

Question 26

What government residential leasehold reform has been announced/in response to what issue, and what changes will be made (3)/what Council will be created/why?

Answer 26

o In July 2020, Law Commission published 3 reports relating to residential long leasehold reform, aim to promote fairness and security in leasehold home ownership.
o Current issues relate to costs of extending long lease, combined with expensive escalating ground rents, which can cause problems when leasehold properties are bought or sold.
o In January, Robert Jenrick announced the following:
 A new legal right for leaseholds of flats and houses to extend leases by 990 years at zero ground rent
 The payment of marriage value from the premium calculation will be abolished and set calculation rates will be established
 Ground rents for all new retirement properties will also be set at zero.
o Furthermore, a Commonhold Council will be created to prepare market for anticipated increased use of commonhold tenure, with future announcements in due course.
o 2 stage process proposed – 1 to introduce legislation in next parliament session for ground rents, 2 for other recommendations.

Question 27

What 4 things does the RICS independent review of real estate investment valuations look at?

Answer 27

o RICS has launched independent review of real estate investment valuations. Looking at how assets are valued for investment purposes, specifically:
 Valuation methodology
 Property risk analysis, also known as the ‘forward look’
 Independence and objectivity
 Measuring market confidence in RICS valuer performance
o Feedback on the Call for Evidence is invited by 31 March 2021. Expert advisory group will publish its findings by Sept 2021.

Question 28

What does the RICS COVID-19 recovery business plan 2020-2021 set out, and with what aim, and key priorities (4)?

Answer 28

o RICS published as response – sets out strategic direction and objectives over 3 year period.
o 12 months given particular focus – aim of creating a ‘new, more resilient RICS, fit for the future and capable of responding rapidly to ongoing and significant socio-economic changes and trends that impact our profession’
o Key priorities include:
 Be influential thought leader, trusted by all stakeholders
 Sustainable 21c body
 Enhance RICS’ environmental, social and governance programme
 Grow a high-performance culture

Question 29

Why has the RICS governance structure been changed, what changes have been made/what new board established, and what is current progress?

Answer 29

o To introduce ‘more diverse and global expertise, alongside increased independent-led oversight of our standards and their enforcement’
o New governing council elected, with professionals from 12 global regions and six strategic areas of the profession.
o New Standards and Regulations Board established – with the chair and majority of member being independent from the profession. Role to ‘provide assurance across all RICS standards and how they are enforced globally’.
o Stage 1 complete, stage 2 ongoing, no deadline announced (check).

Question 30

What does the planning white paper propose (5)?

Answer 30

o Published 6 August 2020, proposing radical reform of current planning system to make fit for purpose.
o Zoning introduced in local plans, categorised into growth, renewal and protected areas.
o Standard method introduced for establishing housing requirement figures.
o Growth zoned areas automatically granted outline planning permission for the principle of development
o S106 agreements no longer use and the community infrastructure levy being altered.

Question 31

What does the IPMS All Building Asset Classes consultation/when did it close?

Answer 31

o Consultation closes 31 March 2021.

o New IPMS standard will relate to measurement of mixed-use and specialist buildings.

Question 32

What steps should you take (COVID 19) for an inspection?

Answer 32

o Consider whether a physical visit or inspection is absolutely necessary.
o Secure as much info as possible prior to visit and ensure risk assessment addresses COVID risks.
o Ensure you have obtained a COVID-19 secure certificate prior to inspection, and restrict viewings to 2 people, or as practicably possible.
o Check whether anyone falls within a vulnerable group, has/had COVID-19 symptoms, and has not yet completed the required period of household self-isolation, or is awaiting test results.
o Ensure areas are open/easily accessible to reduce contact with surfaces as much as possible.
o Adhere to PHE guidelines on cleaning hands thoroughly prior to and upon leaving the property, sanitise equipment, and avoid touching your mouth, nose or eyes.
o Ensure face coverings are worn and social distancing requirements are adhered to.
o Dispose of any PPE used during inspection
o Advise client the property will be left as presented/found at arrival.

Question 33

How has COVID effected client communication/confidentiality?

Answer 33

• Ensure client confidentiality/data remains secure, even though you may be working remotely (I.e. securely store physical files, away from even other family members, password protect digital files, encrypted communication etc.)
• Where possible, avoid physical contact with clients and instead email/phone/video

Question 34

What steps should be taken in your office during the pandemic?

Answer 34

o Maintain social distancing: rotational shift practice with workstation disinfection after each use and 1.5-2m gap between employees by disabling work stations.
o No entry for people displaying COVID symptoms.
o Create circulation routes promoting one way traffic and designate areas that are most exposed to contact with people from outside of the company.
o Schedule meetings with breaks for air exchange.
o Increased frequency of common area cleaning/disinfection.
o Regularly disinfect high touch services such as photocopiers, and occasionally disinfect entire office using ozone fogging.