The UK’s lockdown didn’t come until the final month (March) of Quarter 1 (2020) and so property eyes are immediately looking to Quarter 2.
On the high street, coronavirus and the lockdown have simply served to hasten the demise of those retail and food & beverage brands who were already limping on through the first quarter of this year.
The second quarter - anchored round June’s Quarter Day - will see a reckoning of sorts, notwithstanding the Government’s emergency - but temporary - moratorium on landlords’ ability to resort to law for non-payment of rent which, as it stands to date, ends in May.
Consensus abounds about the inevitable high level of business failures and en masse redundancies - particularly in the retail and food & beverage sectors - when lockdown ends. There will be no ‘Day Zero’ when it comes to lockdown ending with the mooted phased ‘return to work’ over the coming weeks.
As it stands, to date, the Government is only committed to furlough payments until the end of June. The Chancellor of the Exchequer has recently hinted that a phased removal of the furlough scheme is under consideration. Economic commentators talk of salary support dropping from its present 80 per cent to 50 to 40 then 30 per cent in consecutive months were any form of furlough scheme still in existence beyond June.
Then there is consideration of the inevitable effect on consumers’ disposable income and discretionary spending that drive high street retail and leisure fortunes. Even if furlough is extended, it just will not be enough to prevent job losses and business failures in the high street - and other - sectors.
Piling on another layer of uncertainty for operators in the sector is whether or not customers and patrons will return to their former high street and leisure pursuits. And if they come, will they stay?
Savvy civic and private stakeholders in the high street had rung the changes over the past decade and acknowledged that, as customers and patrons, we were looking to have a shopping and leisure ‘experience’.
Who can say for sure that we will want to linger and experience the vibe of eating and socialising in the wider company of strangers?
Proprietors who can organise social distancing will prevail, for the time being at least. However, from this vantage point in the pandemic’s phase, it is difficult to make the call as to whether it will be the large or small operators who will best cater to customers’ new socialising and spending priorities.
On the one hand, larger venues might be better placed to capitalise on their available space by setting aside cordoned-off areas. Or will, with a squeeze on discretionary spend, patrons want to enjoy the exclusivity and intimacy of the niche, independent operators whose offering can charge a premium for a non-en masse experience?
The flip side is that some operators have come through the past two months in a better place than others because of the flexibility of their response and position during the period of lockdown.
Those retailers who were already serving the public with click and collect or online ordering/delivery services across a number of channels will continue - for the foreseeable phases of any future lockdown periods - to enjoy trade. These operators have seem a massive increase in trade in the past two months and they will seek to retain this market share going forward
Consumers have learned to love their neighbourhood grocers, butchers, farm shop or at ‘farm gate’ outlets again - alongside their local milkman.
Additionally, a number of wholesalers of fresh produce, baked and pre-prepared goods and confectionery who once supplied restaurants, schools and institutions have been turning their hands to direct ‘doorstep’ deliveries. From their warehouse units, these wholesale suppliers have, in the main, done this by harnessing the power and reach of social media platforms in their communities and local word of mouth recommendation.
Colleagues specialising in industrial agency - where the warehouse and distribution operators reside - are experiencing a demand as unprecedented as the times. It will be interesting to see how this plays out when it comes to rental values in the industrial sector.
Even if the Government is not minded to extend its moratorium scheme curtailing civil litigation against non-payment of rent to the June quarter, it is not unreasonable to assume landlords will still act reasonably. However, operators who have been overly reliant on this layer of protection do leave themselves exposed now.
Landlords are pragmatic and we would urge occupiers to proactively open up a dialogue now and not wait - and thereby run considerable risk - before addressing the issue.
In the immediate term, CVAs (Company Voluntary Arrangements) and rent holidays and temporary moratoriums - whether or not Government-led - will dominate commercial property reporting on the high street because voids are not in landlords’ interest.
The next phase of thinking about property in the post-pandemic shakedown will be for property owners and investors to consider alternative uses for what were once retail or leisure units. This could be a change of planning use within commercial business use classes or, alternatively, a more radical change of use.
The past two months have put in to sharp relief what has been playing out on our high streets for the past decade. For the high street, there can be no going back to its old offering as that had been in doubt and in transition for a number of years before Covid-19 came along.
Along with our economic, civic, cultural, public and private prosperity, high street property fortunes face a long haul to a very different place than that of just eight weeks ago.
For more information about retail, food & beverage and leisure property prospects and opportunities, contact Julian Welch on 01733 897722.