Commercial Property Post COVID-19

By Annie Drew

---

In recent years, interest in commercial property has seen a drastic increase with investment quadrupling in the past twenty years. Commercial property covers a wide range of buildings and developments, namely office spaces, warehouses or retail outlets. The commercial property sector is an important element in the UK economy as it is a key factor of production, covering areas such as construction, manufacturing and employment. Hence, any impact on the sector is likely to have economic repercussions. Enter Covid-19.

The Covid-19 pandemic has caused uncertainty within a number of sectors, including commercial property. Retail is an area which has been particularly affected, as lockdown has limited the ability for customers to browse products and spending has been limited in a time of financial insecurity. Although supermarkets and online merchants might benefit, high street shops that were already struggling to compete with the advanced technology and innovation of online retailers, such as Amazon, have faced an exacerbated struggle; an example being that of Boots which suffered a recent 8% decrease in sales.

Hotels have also remained closed and student accommodation empty, causing difficulty for related businesses. Many commercial property landlords will have experienced delayed or missed rent payments, as tenants faced financial difficulties throughout lockdown. Some businesses who were struggling financially prior to lockdown may now go into liquidation and hence end their commercial property tenancies. It seems that the steady income that commercial property investors thought was guaranteed cannot escape the effects of a pandemic.

So, where does this leave the future of commercial property?

So long as we escape a second wave, it is expected that a sense of normality will return as lockdown now eases, but the effects on the commercial property market could remain for the coming years. For Covid-19 has not only impacted the current market but has also altered the thinking of many companies and individuals. Following the uncertainty brought about by the Covid-19 pandemic, some investors may now choose a ‘safer’ option in which to invest their money in an attempt to secure a steady and fixed income during a turbulent economy. An example of this would be investing in warehouse space, as opposed to retail property, as we have seen a shift to online shopping throughout lockdown.

Similarly, lockdown has changed the way in which employers use commercial property as workspace. An increase in flexible and home working could result in companies prematurely ending tenancies, resulting in empty office space and a lack of income for landlords. An increase in remote working, however, brings about some forms of positive change as employers have been encouraged to think more innovatively in their attitude to employee satisfaction. Many employees have adopted remote working as a long term possibility, which will in turn ensure that businesses have the facilities to provide a more flexible approach to work in the future. In addition, in an attempt to work more inexpensively, employers may assess how much office space, if any, is really necessary to achieve their goals as a business. Although it is unlikely that businesses will operate on a full time remote basis and offices become redundant, it is possible that businesses could share office space and rotate shifts, known as ‘hot desking’. This kind of restructuring can already be seen, for example, by Westfield’s recent plan to develop House of Fraser into flexible office space.

Although it is hard to predict changes in the current state of uncertainty, it seems that a decline in commercial property may be on the cards for the coming years. Whilst some businesses may be damaged beyond repair, it is likely that some could benefit from an innovative approach and the opportunity to develop a new business strategy. Those that transition effectively and use the opportunity to modernise their approach may be able to benefit from long term success and sustainable development in the industry.

---

Key Takeaways

· Commercial Property was seen as a burgeoning asset before the pandemic

· Several high-street shops were already struggling before the pandemic hit and could shut down as a result

· After the pandemic, changes in attitudes towards remote working could have a lasting impact on office spaces