UK high streets have been in decline for some time, but the Covid-19 pandemic some experts claim has accelerated this decline by up to 5 years as the relentless growth of on online shopping continues apace.
Similarly, commercial office space is being hit by the pandemic, the growing use of technology and home working has seen to that. Again, a flexible working trend that was already apparent, more mobile and homeworking, has been accelerated by the pandemic.
City centres and their offices and public transport links are deserted right now, as are many office blocks around the UK. It may be some time before much of the working population drifts gingerly back from working at home and into the office, and in some cases it will never happen.
The Covid situation has affected commercial property investments quite dramatically, certainly in the short-term. Investors in some of the UK’s leading commercial property investment trusts have had their funds “gated” with their chosen favourite investment funds suspended. Because of their illiquid nature, and lacking sufficient cash in the funds to service redemptions, the fund managers were left with little choice but the freeze them as people naturally feared the worst and rushed for the exit.
One sector in the commercial property market that’s bucking the trend however is the “big shed” or the 45,000 sq ft “mega box” warehouse market. It’s a completely different story to the rest of the sector.
Again, the trend has been there for some time and again the “black swan” event of the pandemic has rocketed this trend as the logistics industry scrambles to meet demand. And it looks like this growth spurt will continue into 2021 and beyond as retailers continue to get their supply chains fit for purpose in the new multi-channel world.
Next, Ocado, John Lewis and Marks & Spencer have all announced plans to spend hundreds of millions of pounds on their supply chains in the coming years. Plus there are the existing big players such as Amazon, Tesco and Asda, and lots of newcomers on the horizon such as Wayfair.com, who Savills report are increasing the amount of warehouse space they need at exponential level.
So far, says Savills, we are not currently seeing Brexit have a significant impact on occupier demand, either positive or negative, but this could change as more clarity emerges and the UK’s post transition-period trading arrangements kick in.
By January 2020 online traffic had grown to just under 20% of all retail sales, but by March this year figure was over 30%, a massive rate of growth considering previous research predicted the sector to be delivering 25% by the end of 2022.
With growth continuing to grow above the March 2020 figure, industry experts see this direction of travel continuing, but perhaps at a more modest level than that of the first half of this year. Home delivery eats away at profit margins and part of the impetus for the deliver growth of this business model is that retailers fear being left behind.
However, economies of scale efficiencies, driven by new warehouse / logistics automation technology, have an important role to play here, making the possibility of home delivery retailing a very viable business model for the future.
Experts believe the eventual outcome is something like a hybrid model, where some trade drifts back to the high street as retailers learn how to integrate online and in-store (Omin-channel), much like what may happen in the office market as employers learn how to integrate flexible and home-working with normal office life.
What goes around tends to come around, so although Covid and perhaps to a lessor extent Brexit will have been massive disrupters in the commercial property markets, there will be opportunities for those property investors and developers who can spot the long-term trends and act accordingly as this dynamic landscape changes.