Britain’s high streets could suffer a “knockout punch” following a second wave of Covid-19 as landlords and developers are forced to close down as much as 12m m2 of retail space and seek alternative tenants.
With many shops already boarded up and many more under threat of closure, a survey of more than 400 property development bosses by the consultancy Altus Group found that 38% of executives had already been switching their retail properties to other uses, while a further 57% were considering doing the same.
The annual Global Property Development Trends report said that a second sustained wave of Covid-19 cases would likely deliver a final blow to high streets. Non-food retailers, which had already been struggling amid a rise on online shopping, shifting consumer tastes and rental costs, were hit hard by the pandemic and have lost £9bn in sales so far this year.
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Together, those pressures have made it harder for retailers to keep up with rents covering the total 125m m2 of retail floor space in England and Wales. Prof Joshua Bamfield, a director at the Centre for Retail Research, said at least 12.5m m2 of that total will have to be altered.
“There is no alternative to repurposing,” Bamfield said. “As much as 10% of retail floor space might need to be repurposed in the short to medium term, but could be much higher in major cities eventually.”
That could include a shift to mixed-use properties, which Altus said will likely have a “community-type focus”.
According to the Centre for Retail Research, 13,867 shops have permanently closed so far this year, a 24.8% rise on the same period last year.
“Longstanding pressures faced by property owners and developers through declining retail rents and failures have now been exacerbated by the pandemic and its evolving impacts,” Scott Morey, executive director at Altus Group, said. “However, the property industry is recognising opportunities that exist and will seek to repurpose assets during this period of uncertainty and well into the recovery stage.”
Companies involved in commercial office properties, meanwhile, are facing a crisis due to the fresh wave of Covid-19 cases and the government’s call for employees to work from home where possible.
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Serviced office giant IWG, formerly known as Regus, is reportedly ready to axe £790m worth of lease agreements within days unless landlords agree to cut rents. According to the Sunday Times and real estate trade magazine CoStar, IWG’s Regus subsidiary will file for insolvency within days, a move that would effectively dissolve lease contracts across 500 sites. The Regus subsidiary accounts for around 15% of IWG’s global rental contracts.
An IWG spokesperson said: “The Covid-19 pandemic is a black swan event and it has severely impacted our business and presented us with unforeseen challenges.”
IWG would not disclose how many rental contracts might be affected in the UK as a result of an insolvency filing by Regus. The company also operates in the UK under other brands including Spaces, Signature, OpenOffice and No18.