Foreward by Andrew Chilvers
Real Estate across the globe has taken a huge hit by the Covid-19 crisis as businesses and retailers close indefinitely, while customers are locked in their homes.
In the US and UK, the ‘brick-and-mortar’ retail sector has been in a sensitive state for some time as people have been deserting the high street and opting for online shopping. Even the new hyper-malls that had focused on the out-of-town shopping experience have closed during lockdowns imposed by governments around the world. Add to this the closure of all restaurants, pubs and hotels, and thousands of small and medium-sized businesses are now struggling to survive for month to month.
Consequently, real estate investment businesses are finding it difficult to collect rents. In London, Intu, a property investment trust, claimed it received less than 30% of the rent due to the company in Q2. This compared with almost 80% in the corresponding period the year previously. Elsewhere, Hammerson, an out-of-town retail parks developer in the UK, said it had only received 35% of Q2 rent from clients.
On the UK high street retailers such as BrightHouse and Debenham’s filed for administration along with Italian restaurant chain Carluccio’s. These were only the big names, many more smaller businesses followed.
Such horror stories were echoed across North America, Europe and Australia as real estate was hit worldwide. As with London, the sectors hit hardest in different jurisdictions were hotels, restaurants, bars and general entertainment outlets followed by retail and housing (particularly second-homes).
How this plays in the coming months and years is difficult to predict. But all real estate analysts agree there will be a sea change in the medium term at least as home owners, retailers, landlords and investors rethink their rental and investment strategies.
Can you tell us about the impact COVID-19 will have on the retail sector, short and long term?
At the moment in Belgium as you can imagine it’s difficult for retail. Everything is closed except for some essential shops like pharmacies, post offices, banks, grocery stores and more recently garden centers and DIY-stores. So we have seen a complete shutdown. But there is decent support from the federal and regional governments at the moment, providing economic support for landlords and tenants. Giving the retail shops a fixed compensation in the range of EUR 4,000-5,000 and 160 euros per day extra until April 6. This provision will be extended as the lockdown period increases.
We’re also getting a lot of calls from worried landlords about the problems they’re facing and the temporary force majeure, which is governing the current situation.
Overall, the lockdown everyone is faced with is well organised. Many companies are closing to protect their staff and customers, and those that are open – mainly supermarkets – are well stocked and there’s very little interruption of the supply chain. Many businesses – our clients and our own operations – are now largely being run from home and only limited numbers of people are going into offices.
How do we reinvent the High Street or Main Street after this kind of trauma?
That will be one of the major challenges following the Covid-19 period that we are currently living through. Apart from small grocery stores, in Belgium I can see much of shopping going online. We will see an undoubted increase in that online shopping experience and the recent evolution will probably turn into a revolution. This will lead to fewer physical shops across the country as major retail brands focus on larger showroom stores in the main locations. But they will close down their stores in the B and C locations, which will no longer be as profitable. From my perspective, it will push more people as first timers, even older people, into e-commerce purchasing.
We are no doubt heading for difficult times. The physical, retail world was under severe pressure and we’ve already seen several bankruptcies. But I think with this, more brands will go under. Also, I can see large restaurant chains going bankrupt, which was certainly not the case until the lockdown. The restaurant and hotel sectors were really flourishing until very recently.
In the past year a lot of new developments were promised. New chains of restaurants and hotels. They will be hit very hard so we’ll see what the impact will be on those submarkets in retail. The restaurants were the first to close down and a lot of people were immediately placed into technical unemployment. But, of course, that can’t last for too long. They will get some money, but they will need to look for something else. So we will have serious losses in the hospitality and leisure sectors.
In response to Covid-19, will there now be a huge rise of online shopping? In the future can brick-and-mortarretailers also use technology to attract the right kind of customer?
Technology can also support the High Street. It can add to the physical experience. So I would not just see technology as a threat for physical shopping. It can add to the experience and assist people who are shopping around for the products they want. In that respect, technology helps developing alternative ways of shopping and can be a boost if it’s used well for the physical shopping. And, of course, new rules need to be put in place, particularly following the introduction of GDPR throughout Europe.
Technology can actually be positive for the physical shopping experience and shopping as a whole. Businesses just have to adapt regardless of the circumstances. For instance, people search for the products they like on apps and on the Internet before they go shopping. Then they will often walk to a shop nearby to pick up the items. They will make that effort, but if they can’t find it physically they will order it online. I also believe that shopping malls, which gives a broader experience and entertains people, will still have the power to attract people, if they are managed well. But without doubt the smaller centres will suffer. Finally, for young people the shopping experience is often related to social media influencers and how successfully brands are at marketing through the different channels. This is for e-commerce as well as for physical shopping. Young people are hugely influenced by Instagram influencers, for instance, and they will often determine the kind of physical and online shopping experience. Retailers really do need to understand this. There also needs to be more investment in logistics to satisfy the shopping needs of customers. For traditional retail business models there’s a lot of reorganising to do.
