As we approach the end of a year like no other, I want to give an update on why Sirius has remained resilient throughout the pandemic, how Germany’s response to Coronavirus has differed to that of other Western countries, and why we’re well-positioned to drive further growth as we emerge from the crisis.
Performance in the first half of 2020 has been robust. We’ve maintained a high level of cash collection, at 97.3% of normal levels, and have seen just a 1% drop in occupancy across our portfolio. Our underlying rental rate per square metre is up 1%.
Just as importantly, we’ve been able to flex the nature of the tenant space we can offer in response to shifting customer demand. Reflecting changing behaviours and requirements during the pandemic, there has been an increase in demand for storage space across the board, both for domestic and commercial purposes. Similarly, we’ve also been able to adapt our meeting room offering to accommodate for the extra space required to meet social distancing measures.
In the meeting room segment, demand had returned to normal in the latter stages of the summer and early autumn, and this combined with the extra requirements for space has actually driven revenues up in this space.
Resilient and flexible business model
How have we been able to remain so strong during the crisis, where others have been struggling to adapt and weather the economic turbulence? I believe the answer lies in the unique Sirius model, which has proven both resilient to shocks and flexible in the face of shifting customer demand. For many years, we have talked about our business model being on for all weathers – and, in my view, our performance in 2020 has further underlined that point.
Part of our resilience comes from the diversity of our tenant base. This comes in three key ways: firstly, they range in size from blue-chip companies such as Siemens and GKN, right the way down to sole traders. Secondly, our space is occupied by tenants across a hugely diverse range of industries, and we have no more than 3% exposure to any one tenant industry vertical. Thirdly, we offer a mixture of spaces, from offices to industrial warehousing and self-storage units.
Put together, this means we’re exposed to a slice of the entire German economy, without being over-exposed to any one tenant, industry or type of space.
Our model is also highly flexible, and we’ve been able to change the edge of our offering to adapt to the market in times of crisis. Where other operators in the commercial real estate space are built to focus on certain types of tenant or sectors of the economy and struggle to adapt, we can be agile and responsive.
At the moment, we have over 100,000 square metres of vacant space, of which around half is under planning permission. We can amend those plans very quickly to bring new offerings to market where we see demand.
As an example of this, at one of our sites we turned vacant land into storage space by bringing in shipping containers, which took just four weeks from conception to execution.
Finally, we’re an active manager of our portfolio. We have over 260 people in 60 locations listening to our tenants and providing active management on the ground, so we hear and can respond to tenant demand quickly.
Germany and the pandemic
We operate in the German market, a country that is set up strongly to deal with the pandemic. This is on both a medical level and on a commercial and economic level.
Germany’s medical system is strong and has a high level of capacity, from ICU beds to fast test results and high-quality tracing systems. The population at large is also broadly compliant with Coronavirus measures, be they social distancing or mask wearing.
Economically, Germany was well set up for such a disruptive event. The Kurzarbeit scheme, Germany’s furlough system, has been in place for years and was tried and tested long before the pandemic, where other countries had to build theirs from scratch in a matter of weeks. This has enabled funds to be efficiently distributed, keeping the economy ticking over.
Germany’s longstanding system of devolved government is also well-suited to such a crisis, with strong local governments being well placed to tackle issues that arise from state to state.
Finally, while Germany is at the time of writing entering tighter measures on social gatherings and the like, these are likely to be less restrictive on economic activity than those seen in other countries.
Well-positioned for future growth
All in all, Sirius is in a fantastic position to develop and grow from here. Rather than repairing the damage of the crisis, our model remained resilient and flexed in response to shifting demand, and now we’re in pole position to keep improving our excellent offer to customers and continue to help our tenants drive Germany’s economy.