The property market is ever changing and at the time of writing some non-essential retailers have returned to the high street and there has just been an announcement that the Government has relaxed the two-metre social distancing rule for certain parts of the leisure sector.
The market is seeing a (very) gradual increase in activity, albeit working up from a low base.
The advice remains that employees should only be asked to go the office if they cannot do their job from home and occupiers have been bombarded with advice about how to make their workplaces safe.
Most occupiers have been ‘feeling their way’ as they gain a better understanding of how these changes will work on a daily basis. The announcement that social distancing has been reduced to one metre, should make a significant difference to how and when businesses return to the office.
The key will be how returning staff adapt to new working practices, how comfortable staff feel using public transport and when they return and to what extent any behavioural changes become permanent.
Most companies will therefore adapt with a balance of continued working from home and less densely occupied office space, until such time as the social distancing restrictions are lifted altogether or a vaccine can be found. They will doubtless avoid making long-term decisions until or unless they have found some sort of equilibrium.
Somewhat surprisingly, there has been a healthy level of interest from some occupiers seeking new premises. Since the lockdown restrictions in relation to property inspections were loosened, towards the end of May, we have noted a 55% increase in the number of viewings compared to same period last year.
That said, one sector alone is generating all the activity and that is food-convenience stores, delis, cafés, take-aways or restaurants. The sector was undeniably encountering some extreme difficulties prior to Covid-19 and in many instances the pandemic has merely accelerated the decline of those comparison retailers like Debenhams, Monsoon and Cath Kidston. It is no surprise therefore, that we have seen a 60% increase in the number of new instructions coming to the market, compared to last year, with the expectation of more to come.
It remains to be seen exactly what sort of shape the sector will be in as we emerge, but it is reassuring that there are still many retailers out there who have confidence in the future of physical stores at a time when ‘online’ retailing has probably never had it so good.
While there has been limited transactional activity, the appetite and weight of capital for property investment remains strong, particularly from private wealth and the smaller property companies. We have seen a strong demand for quality assets let to strong covenants on long leases, with convenience store investments at the lower end of the market leading the way. Such properties are generally let to the likes of Coop, Tesco and Sainsbury held on 15-year leases and CPI linked rent increases, often with the benefit of onsite parking.
Assets with underlying development upside also remain in demand as do industrial and warehouse assets.
The retail and leisure investment market has understandably been quiet during the pandemic and the situation for larger city centre offices currently looks uncertain. It is therefore difficult to assess where true value currently lies, but the expectation is generally that values will decline over the short term and recover strongly in 2021.
With the easing of lockdown, it will soon become apparent which operators and sectors have weathered the storm best, but for them the next hurdle is the June quarter, when for many the next payment of rent becomes due – this time without the benefit of the safety net, being the Government moratorium on the landlords’ normal methods of enforcement, which expired on June 30.