In October 2018 Antonia Shield (Managing Partner who led BPE’s Commercial Property team before taking on her new role at BPE) wrote an article under the same heading “The ‘e-tail’juggernaut” which considered the retail revolution and whether the shift to sheds was sustainable for the long term. Back then, the resounding answer was yes; but where are we now in light of Covid-19?
In 2018, the industrial and logistics sector was forecast to be the best performing commercial property sector, and the huge demand for shed and warehouse space is only likely to increase in light of Covid-19, if this lockdown accelerates the expected shift in shopping habits, which we expect.
This type of building was already at a premium with limited stock and land available, so increasing demand will continue to force prices and rents up even further. BPE has been involved with some huge transactions in this space. The regional distribution centre almost finished at Midlands Logistics Park, Corby, with a gross internal floor area of 844,000 square feet, and eaves height of 18 metres has been one of the larger deals. That development was forward funded by Tritax Big Box REIT to the tune of £81.8 million and it won’t be the last in that sort of size, particularly now. The boom in logistics infrastructure will continue, but have we fully understood the impact it is going to have on the wider built environment, and will our experience of Covid-19 change things?
From warehousing to retail
There have been warning signs from across the pond for years where online shopping is even more a part of everyday life than here. Many US shopping malls, synonymous with American life in the 1980s and 1990s, now lie derelict. Even two years ago, the writing may have been on the wall for some UK shopping centres, with some questioning their market value and this has undoubtedly intensified the solvency challenges being faced by certain UK shopping centre landlords.
This has not been helped by many well-known high street names refusing to pay their March quarter rent as a consequence of Covid-19. Those same names are not likely to pay their June quarter rent either – and more will join them.
The government moratorium on forfeiture, recently extended to cover statutory demands, is not going to help anyone long term because without the income, tenants will struggle to pay the back rent, and maybe they will never be able to pay it. There aren’t new tenants queuing up to take the space and footfall in shopping centres is very unlikely to rise fast if we all have to queue. The horrifying prospect of derelict centres is moving ever closer, although maybe longer term could they be repurposed and somehow absorbed into our logistics infrastructure?
But what of the high street.
When I considered this two years ago the lasting effects of the move from the high street to online were already here to stay.
Covid-19 has offered a lifeline to smaller food stores which have benefited from a resurgence in footfall as people seek to shop more locally, and many entrepreneurial pubs and restaurants are also turning themselves into convenience stores, supplying the public through their “doorways” real and imagined (online), which may help just see them through this crisis. But will this new consumer behaviour continue when we can once again dash down to the local supermarket for a couple of items?
Our behaviour may change to an extent – but price usually wins and this small glimpse of how things were is unlikely to be enough to trigger a resurgence of the traditional high street.
But might what we are enduring at the moment through Covid-19 make us more conscious about future decisions?
The positive impacts on traffic congestion, air quality and the built and unbuilt environment at every level cannot be ignored. It is these impacts, and the knowledge of them, which may drive sustainable behavioural change. This is what may really help facilitate the reinvention and evolution of our high streets.
It is this kind of diversification which could be mirrored on our high streets, to create a truly mixed use offer (where it isn’t already) covering leisure and working. In terms of creating that bricks and mortar viability, the property sector must adopt turnover rents more widely.
The lack of income stream precipitated by using true turnover rents (with no base rent) is one of the key reasons there has been no widespread adoption, but for our economy to thrive again, the approach adopted in the property sector will need to be one of sharing the economic tidal flow. It may even be this which will save some of our shopping centres (and high street names) in the long term and whilst the path to that place will be challenging, the experience of Covid-19 may make everyone realise that it’s the only option.
Antonia Shield, Managing Partner
BPE Solicitors LLP