In February 2020, US-based VC firm Fifth Wall announced a new $100m Retail Fund. Unlike other investors who, spurred on by the pandemic success of Amazon and other online retailers, Fifth Wall are leaning heavily into retail concepts that are looking to “accelerate their bricks-and-mortar expansion”. Meanwhile, in hospitality, a report by consulting group CGA released in January revealed that more than 10,000 licensed premises had closed permanently as a result of the COVID-19 pandemic.
More than a year on, with many industry doom mongers prophesying an accelerated physical retail decline caused by the COVID-19 pandemic, what is the actual outlook for the high street and physical retail and hospitality businesses?
We’ve looked at the data from across our platform and identified 3 things that haven’t changed about the retail and leisure markets, and 3 that will never be the same again.
3 things that haven't changed...
- The vast majority of retail will still happen offline – undeniably, online-only retailers like Amazon have seen a huge rise in revenue but this, at least in part, is because shoppers simply didn’t have any alternative. Scenes of a packed Oxford Street in December 2020 reveal the ongoing positive consumer sentiment towards shopping in person. This is a behaviour that we don’t see fundamentally changing.
- Direct-to-consumer, digital native brands want to be in physical space – before the pandemic there was a group of companies growing faster than Amazon – digital native, d2c brands. These brands have sophisticated e-commerce operations allowing them to acquire and serve customers generated through programmatic advertising and social media. However, these companies know that brand affinity is best developed through the offline, in-person experiential bricks-and-mortar store. Brands like Allbirds will continue to lean in to this blended model once high streets and retail re-open.
- The independent busines is king of the high street – the positioning of the small, local, independent business to replace traditional anchor tenants will persist and, indeed, be solidified by the changes brought on by the pandemic. Consumers’ inability to travel outside of their local areas has seen a boost for smaller, independent retailers while restaurants pivoting to home delivery has encouraged people to explore their local restaurant scene more. With John Lewis the latest to announce that a large number of its department storea won’t re-open after lockdown ends, independent businesses will continue to be the big draw for consumers into town and high streets.
3 things that will never be the same again...
- Traditional covenant strength counts for less than ever – the high-profile collapse of retail groups like Debenhams and Arcadia has highlighted how inadequate the current covenant strength measures are in assessing the ongoing viability of an occupier. Overleveraged and over-exposed corporate tenants aren’t the “safe bets” they used to be. Instead, agents and landlords will have to look for alternative ways to ensure the suitability and affordability of a space for a tenant. Factors like tenant mix, enhanced by the application of big data and analytics will soon come into their stride.
- Increasing lease and rental term flexibility – flexible leasing for commercial space has long been on the agenda and industry futurists have long predicted that alternative models of income generation for landlords will become increasingly prevalent. During the pandemic, many landlords and occupiers have been forced by circumstance to come to alternative arrangements such as turnover rent or a blended model of base plus turnover. For many, these new arrangements will stick and it will become increasingly uncommon for premises to be let on a pure ‘price per square foot’ basis.
- An experience and socially-led high street with emerge – the High Street Task Force, amongst other industry bodies who work explicitly on this topic have noted the shift (necessary and timely though it might be) from pure retail-led town and city centres to experience and social led environments. The Government’s recent relaxation of planning regulations will help improve the mix of uses in our town centres and, hopefully, we’ll see a healthier blend of retail, residential, office, and service-led commercial units alongside community-driven placemaking activity.
Whatever happens over the coming months it is clear that, as the commercial property market begins to recover and get clear of the immediate mess caused by the pandemic, there will be some seismic changes in the way the market works. However, the slow-moving nature of the industry coupled with the permanent and physical nature of the asset class will limit some changes and reinforce pre-pandemic trends bolstered by changes in consumer behaviour.
At Qualifyr, we’ve built tools that are designed to help agents use up-to-the-minute data when matching commercial occupiers with spaces. By doing so, we’re helping to create long-term sustainable partnerships between landlords and tenants that will bolster the health of our towns and high streets and make agents work smarter, not harder, in the midst of a volatile and recovering market.
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