COMMERCIAL PROPERTY MARKET OVERVIEW
The UK economy was hit hard as a result of the lockdown measures taken to contain the spread of COVID-19. Gross domestic product (GDP) fell over 20% in April 2020 and has since seen slow recovery in June (+8.7%) and July (+6.6%) with the easing of certain restrictions.
High street retail sales have seen a large drop despite the relaxation of social distancing measures, this has inevitably impacted the footfall and desire for shoppers to hit the streets. Total spending on London high streets is reportedly down 50 percent as a direct result of the coronavirus lockdown with many retailers dependent on office worker and tourist spending. Despite the re-opening of “non-essential” shops, footfall is still lower with the West End and Mayfair down approximately 75% since re-opening.
The new Use Class Order has now been implemented taking effect from 1st September 2020 with Class E allowing a mix of uses to reflect changing retail requirements. Buildings now have more flexibility and can have a number of uses taking place concurrently or by allowing different uses to take place at different times of the day. Changes made to the classification scheme for different uses gives flexibility for developers in England at a time when there is a need to repurpose town centres and high streets.
The true impact of the lockdown measure are yet to be felt in the office market with job losses and business failures likely to increase which will in turn have a negative impact on rents. Vacancies are predicted to rise, in particular with the end of the Furlough Scheme in October, putting pressure on businesses with their staffing. Occupiers’ priorities may now have changed. There is a clear shift in flexibility of working from home which puts further pressure on demand for traditional office space as companies discover they can work more remotely.
On a more positive note, demand for warehouse space in 2020 has already exceeded the annual average and is looking likely to be the best year ever recorded for logistics take-up. As the level of online retail has risen during the pandemic, to around 30% of all retail sales, the amount of warehouse space needed has also risen. With the retail market increasingly becoming more e-commerce based, demand for logistics space will inevitably continue to rise. Should the occupier market continue as it is at the moment, it is likely that rents will rise and there will be inward pressure on yields.