A pedestrian wearing a face mask as a precautionary measure against COVID-19, walks past closed-down shops on an empty Regent Street in London on April 2, 2020, as life in Britain continues during the nationwide lockdown to combat the novel coronavirus pandemic.
The coronavirus pandemic is hitting U.K. commercial property hard, as retailers close for an indefinite period and shoppers remain locked down at home.
The country’s “bricks and mortar” retail sector has been in a precarious state for most of the last decade as a growing number of people opted to shop online. However, customers that still savored the in-store experience are now stuck at home, after the U.K. government imposed a nationwide lockdown in late March.
Only grocery stores and pharmacies remain open, meaning that restaurants, pubs and other high street stores are closed, with no customers, and many are struggling to pay their rent.
“We expect London commercial property values to fall sharply in the second quarter. The retail sector, which was already struggling with the structural shift towards online spending, is likely to be hardest hit,” Amy Wood, property economist at Capital Economics, told CNBC last week.
Intu, a real estate investment trust with total assets of £10 billion including retail spaces across the U.K., said it received only 29% of the rent due for the second quarter, ending on March 25. In comparison, the company had received 77% of the payments due the time last year.
Hammerson, another major real estate developer with retail parks in Britain, also warned that by late March it had received only 35% of second-quarter rent from its premium outlets in the U.K.’s biggest cities.
“We have received a variety of requests for rent deferrals, monthly payments, and waivers, which we are reviewing on a case-by-case basis,” Hammerson said last week.
Landsec, a U.K. real estate manager, has noted a “huge shift” in how its buildings are used due to the “rapid spread of CV-19”. The company added that 65% of the rent due on 25 March was paid by 31 March, compared with 96% for the same period last year.
“The situation looks very precarious,” Osmaan Malik, global head of real estate at UBS, told CNBC last week. He added that the future prospects of retail property will very much depend on how long the lockdown lasts.
Government orders to stay at home were introduced on March 23, and although they are due to be reviewed next week there is no end date for the lockdown yet.
However, health experts and government officials have warned that life won’t return to normal overnight. There are expected to be gradual steps towards normalization, which makes it unclear when shops, bars, cinemas and restaurants will open their doors again.
WEYMOUTH, ENGLAND – APRIL 05: General views of closed Debenhams store on April 05, 2020 in Weymouth, United Kingdom.
In the meantime, the Italian restaurant chain Carluccio’s and rent-to-own retailer BrightHouse have fallen into administration. Cath Kidston, another U.K. high street name, is also expected to enter administration, according to Sky News, and Debenhams, a U.K. department store chain, said Monday it was preparing to enter administration.
In addition, there are concerns that — even when they’re allowed to — consumers won’t be running to the shops; analysts have raised the possibility that the lockdown could accelerate the move to online shopping.
Konstantinos Venetis, senior economist at research firm TS Lombard, told CNBC: “There will probably be a slower recovery in retail rental demand, as some businesses will downsize (or) close; and it will take some time for consumption to get back where it was pre-virus, not least as unemployment is set to jump.”
The U.K. rate of unemployment rose in the three months to January to 3.9% up two percentage points on the previous quarter.
Given that these figures don’t take into account the corornavirus impact, analysts expect this rate to rise in the coming months.