Retail real estate: trends accelerated


At the height of the lockdown, only supermarkets, drugstores, pharmacies, tobacco shops and pet shops remained open in most European countries. The Netherlands never introduced mandatory closing of retail outlets, although many retail chains did close their doors temporarily. Despite this, two-thirds of retail businesses remained open at the height of the lockdown, according to estimates by Locatus, while early April saw increasing numbers of retail outlets reopen. The 1.5-metre social distancing rule is being used as the basis for this. The reopening is also linked to the relatively weak legal position held by tenants in keeping their stores closed and paying no rent.

Fall in visitor numbers

Nevertheless, we still saw an 85% fall in the number of unique visitors in high streets in the last week of March and first week of April, compared to the first two months of 2020. Although there was an increase in visitor numbers in early May, there was still a decline of over 60%. Shopping centres saw visitor numbers decline by almost 25% after the social distancing measures were introduced. Visitors numbers increased again at the start of May, but are still down by more than 15% compared to the first two months of 2020. Consumer confidence, and especially consumers’ willingness to buy, worsened significantly in April.

As a result of this, retail volumes fell dramatically and rents were paid later and/or only partially. This is clearly visible in the rent payments for April, which saw a 30% fall in the payment of invoiced rent compared to April 2019.

Nuance within retail segments

Not all segments within retail have been equally badly affected. There is a clear distinction to be drawn between fashion and convenience-driven retail. Local shopping centres – with a supermarket as the main tenant – and separate supermarkets continue to be very stable and in demand as investment properties. This is because these segments provide for consumers’ day-to-day needs. Investors active within this segment are reporting average rent payments for April in excess of 80%.

In addition, demand from investors for high street retail at prime locations is expected to see the fastest recovery. This is especially the case if a proposition offers long-term possibilities for repositioning. Fashion stores at secondary locations, such as local neighbourhoods or smaller towns and cities, will be much harder hit.


New owner-tenant relationship

It is interesting to note that several international retail chains are in the process of agreeing payment arrangements to restructure their rent payments. Examples include rent holidays, more significant turnover-related components or turnover-linked rent only. We see this as the first signs of a new relationship between owners and tenants of retail real estate. Based on retail developments, we assume that retailers’ performance will remain under pressure, jeopardising business continuity.


Downward pressure on rent levels

In the short-term, the current imbalance in the retail market and overabundance of retail space, evidenced in our rapport ‘Resetting Retail’ from 2019, combined with the additional pressure of the Covid-19 outbreak, will inevitably inflict downward pressure on rent levels and with it the value of retail real estate.

Accelerating trends

These and other trends that have already been visible in the retail landscape for some time will see a marked acceleration in this process. There will be a new balance between online and offline purchases, and the quantity of retail space will be adjusted downwards accordingly. In some cases, unused retail units offer opportunities for transformation into residential accommodation, office space or a healthcare location. Owners will need to respond to this by making it clear that their assets have potential for alternative use. Government authorities will also need to adjust their policy in order to facilitate and incentivise this market trend.

One interesting development is the change in the relationship between owners and tenants of retail real estate. This is being initiated by discussions about payment arrangements and restructuring of rental payments.

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