Mark Cornelius, Partner
There can be few external factors that have changed the world of commercial property more than the 2020/21 COVID-19 pandemic. While the 2008 financial crash led to tighter credit conditions, diminished demand, and falling capital values, making commercial property development more unfeasible, things did eventually return to normal. It is possible that as a result of the pandemic, the commercial property market will be considerably reshaped due to permanent changes in how we live, work, and shop. So, what can we expect to see in the domain of commercial property after we emerge from the pandemic?
The future of the British high street
The average British high street is now a shadow of its former self. With the disappearance from our high streets of household brands such as Debenhams, House of Fraser, Topshop, Topman, Miss Selfridge, Dorothy Perkins, Edinburgh Woollen Mill, M&Co, Bensons for Beds and many more, there are many vacant stores across the UK. That said, some towns are faring better than others due to the success of local independent retailers.
As a result of the pandemic, commercial property owners and developers will need to become more creative in how their space is used. Space that would have been given over entirely to retail will now likely become more flexible in design, allowing it to be used for retail, living, and leisure functions. This will be more than just the building of inner-city/town flats and apartments. According to Property Funds World, “The prime location and space of shopping centres provides a plethora of opportunities in which it can be repurposed. Firstly, their prime location within the hub of towns and city centres gives a significant opportunity for residential space, for instance. The City of London recently announced plans to rejuvenate the financial district through the repurposing of vacant offices as housing. This is also true for other cities across the UK as well as other counties around the globe. I see an increase in mixed-use residential/commercial buildings that combines the best elements of the two”.
Town centres will also need to do more to make themselves destinations in their own right, other than just for retail. Developments such as the new zip line at Bluewater Shopping Centre will be needed to attract more visitors.
It is also likely that large vacant spaces on our high streets will be filled in other innovative ways such as subdividing to create small units for independent businesses.
With a combination of these and other approaches, it is possible that the British high street can be revitalised as a place to go for people of all ages, other than for a purely retail experience.
The future of workplaces in the UK
Some who expected Britain’s offices to start to refill in 2021 may be sorely disappointed. There are several factors that mean the cat is now out of the proverbial bag, and the swing towards home and agile working is very likely to be permanent. As a result of high-speed internet, working from home has been feasible for many years, but it required the pandemic to force this shift. Like with the high street, the watchword will be ‘flexibility’. Landlords and developers know that their buildings are needed, but the way they are used may change over time. In September 2020, changes to the Use Classes Order were introduced to make it easier to repurpose how buildings are used, meaning that shops, financial and professional services, food and drink establishments, business offices, medical or health services, crèches, day nurseries and centres, and leisure facilities all fall into the same Use Class (E). This will result in owners of buildings having a level of flexibility and autonomy they have never had previously.
We expect to see businesses continue to refine their office use strategies in the coming months based on how many staff return. Offices will still be needed, but tenants will have much-reduced capacity and space needs (a reduction of at least 30% is expected), and this will likely have a corresponding impact on rental prices for office space. A shift towards ever more flexible leasing arrangements is expected in 2021 and beyond as businesses recalibrate their needs.
The development of so-called ‘third spaces is also widely talked about, which will see a blending of office, collaboration, and social spaces. Such thinking, while it has been around for a while, needs to be further explored, and hence we expect to see developers and landlords getting creative about how to create a space that is neither home nor work.
For commercial property landlords and developers, the current time may feel extremely uncertain, but as business and economic confidence returns, those who can play a role in the reinvention of how we live, work and socialise will have a great deal to look forward to. The ability to be flexible and creative will be absolutely vital in ensuring the ongoing success of commercial property ventures.
Please note – this article does not constitute legal advice.