COMMENT | Retail and offices to feel long tail of Covid-19

It has been four months since lockdown measures were introduced on 23 March and, despite efforts to return to some degree of normality, that still seems a way off.

The long-term impact of Covid-19 on the commercial property market remains to be seen, but the retail sector, already on life support after years of diminishing sales and competition from online trading, has been dealt another massive blow from which it may never recover.

The list of companies going into administration seems to be never-ending and includes a growing number of restaurant chains. We have not yet seen the end of it, so is now the time to consider permitted development rights for retail to residential?

Whilst the impact of Covid-19 on the retail property sector has taken centre-stage, the fate of city centre offices seems to be quietly simmering (or is that simpering?). Several large occupiers in Manchester city centre have confirmed they are not planning a full-scale return to the office until the end of the year, while others, with plans in place to allow up to 25% of the workforce back in at any one time, are seeing take-up among staff nowhere near this level.

From discussions with clients, there are several reasons for this. Some staff are struggling with childcare now the school holidays have started but with no holiday clubs, others simply do not want to venture onto public transport to return to the office and then be faced with queues for the lifts, one-way systems and limited interaction with colleagues in any case.

Industrial holds up

The warehouse and industrial sector is, however, bucking the trend. It remains strong and we think it will continue to do so. Lack of stock is the main factor. The North West industrial market has been extremely active since the beginning of the year with a reported 2.3m sq ft of take-up in the first half of 2020, according to Savills. This is approximately 25% above the five-year average for the period.

Covid-19 seems to have had little impact on this sector, other than causing delays on viewings and in some cases, deals taking longer to get across the line. We are seeing activity across the market from occupiers and investors. Freehold premises are still few and far between. This could change if the market takes a hit as some predict towards the end of the year. The consensus, however, is that demand will remain high as we continue to move out of lockdown.

If nothing else, the pandemic has prompted a huge leap in the adoption of home working technology. Remote working tech, ranging from voice calls imperceptibly routed to mobiles, to remote access to your own CRM and other bespoke systems, Office 365, collaboration using Teams, Zoom video calls and online productivity tracking have all taken a quantum leap in levels of adoption since Covid-19 reared its ugly head. The health crisis has, in fact, acted as the catalyst for rapid implementation of technology on a truly massive scale.

Technology as catalyst for change

Four months on and this large-scale adoption of technology is starting to shape longer-term property strategies. Some occupiers have already started discussing alternative options, whether that be downsizing or moving to out-of-town locations that lack reliance on public transport.

While a Covid-19 vaccine could alleviate public transport fears, the technology cat is well and truly out of the bag and there’s no way it’s going back in. Home working has proven to be both effective and resilient enough to warrant being a permanent feature of many businesses. With more staff home working on a permanent basis, reduced demand for office space may be inevitable.

Looking ahead, we continue to see strong demand for warehouse and industrial sale-and-leaseback deals – where occupiers sell the freehold but take a lease on market terms, allowing them to stay in occupation but release capital tied to ease cashflow in difficult times. The office market is not quite as lively, but demand remains for the right covenant.

Act now on rates

A final point, the 2021 business rates revaluation that was postponed in May to “give ratepayers certainty”, has now been scheduled to take place on 1 April 2023 based on post-Covid (1 April 2021) rental values. The only certainty this brings to retailers is that their rateable values will be too high until 2023 and surely means the Government will have to retain the retail property discount currently in place for at least another year until the new list comes into effect.

It is not too late to raise appeals on the grounds of a material change in circumstances caused by Covid-19, but action needs to be taken quickly.

There is no one-size-fits-all approach to commercial property and a bespoke strategy can help occupiers through the difficulties they face. Whether you occupy a single unit or a national portfolio, we can help you review your options, minimise property costs and optimise your holdings for future success.

Published in North West Place, 24th July 2020