The presumed correlation between the pandemic and large store closures on Oxford Street isn’t necessarily accurate. The holistic cost of prime retail space – particularly department stores and major flagship outlets – was already making people question the return on investment.
The pandemic has hastened that change, and the vacancies that are likely to appear on destination high streets in our major cities will give landlords cause for reflection and produce opportunities for new ventures and some alternate uses.
This state of flux gives rise to opportunity. Retailers that are performing well and meeting their lease obligations may feel emboldened to seek improved terms, invest in their estate and assess options for relocation or expansion.
Those suffering greater challenges may seek to downsize store footprints, diversify the use of their existing space or renegotiate terms with their landlords. Landlords with vacant space will equally be looking at alternate uses for their property.
There were movements toward the repurposing of surplus retail space before the pandemic took hold. Retail to residential conversions can help to nurture a thriving retail store environment, for example. Strong residential returns in central London and other major cities will give confidence of a return on investment to retailers and landlords that are contemplating evolving store space in this way.
Repurposing retail space into offices is also a strong option, although there is significant flux in that marketplace arising from home working and its impact on the post-Covid office.
Retailers are still likely to invest in city centres and large shopping centres, but the way that many will look at this will be fundamentally different from in the past. The look and feel of these settings is going to change dramatically, as every stakeholder – from local authorities to residential property developers and businesses – considers what’s needed.
Our research suggests that retailers see their store estate as more important now than ever. Whether or not the same size of store and the same cost of space is deemed appropriate is the more pertinent question. Almost half (47%) of fashion, 39% of lifestyle, 33% of home and 20% of grocery retailers say they need stores in new locations as a result of the pandemic.
Although footfall is currently as low as it has ever been known, consumer-led offerings in retail and leisure will continue to form the major occupier of our prime traditional locations. A typical retail lease is unlikely to offer significant flexibility in the short term unless options for renewal or break are available.
Ultimately, the changes in the requirements of this space will dictate whether store configurations need to change and what rents can be demanded and afforded.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.
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