Landlords and tenants shared the strain of pandemic lockdown. COVID-19 is accelerating the trend in the shake-out of retail.
The second quarter of 2020 bore the full brunt, with lockdown coming into force on 23 March and shuttering all but the most essential shops until a reopening from the 15 June. The cash flow issues retailers faced meant many approached their landlords to discuss their lease and rental payments. Landlords did not want to see retailers fail, but not all were able to waive rents. Landlord Intu struggled to keep its head above water. To no avail, in the end.
Weak consumer confidence to limit rental growth further
Headline rents have declined most markedly so far for regional prime shopping centres. Prime high street shops have seen their rents increase. The not-so-prime high streets have been kept alive in many cases by charity shops, money lenders, betting shops and fast-food outlets. These high streets will continue to struggle with rising vacancy. Lease incentives such as rent-free periods and landlord contributions to fit-out costs will become more generous, and there will be further declines in headline rents.
Structural, long-term vacancy, or alternative use for superfluous retail space?
Changing shopping habits have changed the demand for space by retailers, and the fundamental over-provision of physical retail property needs to be solved. As part of sweeping reforms to the planning system, the government is planning an expansion of the Permitted Development Right scheme to include conversions from commercial property such as retail to residential use. Once this policy becomes reality, the difficulties faced when refurbishing buildings to a different use-class will be the next hurdle.