Commercial Property Bulletin 4

Whilst the residential property market in the southeast appears to be holding up against the ravages of the recession, there are signs that Covid-19 is starting to take its toll on the commercial real estate market despite the measures brought in by the UK Government to protect commercial tenants.  Unsurprisingly, the sectors that have been hardest hit by the pandemic, such as hospitality and the arts, are having difficulties in maintaining premises.  A number of household name restaurant chains have announced nationwide closure programmes and, in the arts, theatres and music venues are also struggling to remain afloat.

In Haywards Heath, a town with a population of approximately 35,000, where Parfitts has two offices operating under its Colemans Solicitors brand, the only arts venue – Clair Hall – was closed last week by the local council.  Although Clair Hall was publicly owned and had been loss-making for some time, its closure points to wider issues in the property market and the decisive “final nail” effect that Covid-19 is having across the country. 

It seems that the key to making use of these newly vacant spaces is increased flexibility.  In other parts of the country, such as Greater Manchester, empty theatres are being repurposed as court rooms to help clear the current backlog of legal cases: so-called “Nightingale” courts.  Earlier in the year, we saw the whole of London’s ExCel Centre turned into a hospital (though, thankfully, it never had to admit a patient).  The longer term economic and social effects of Covid-19 remain to be seen, but this kind of creative use of space is to be welcomed and perhaps gives an indication to the private sector of things to come. 

The future of the High Street, and its apparently imminent demise, has long been the subject of debate and we may now be witnessing a definitive shift towards e-commerce as the dominant way that customers choose to shop.  But, at the same time, we are seeing a greater emphasis on home-working, meaning that smaller local retailers and food outlets are reporting increased footfall while larger companies are reducing their physical footprints. In the news this week it was reported that sportswear firm Nike “has seen a huge rise in online sales as it bounces back from a coronavirus slump” and the chief executive was quoted as saying: “We know that digital is the new normal. The consumer today is digitally grounded and simply will not revert back”.

In common with all businesses, commercial landlords and tenants need certainty when it comes to their contractual arrangements, including in relation to their properties.  Nevertheless, in response to the significant uncertainty created by the current crisis, the emphasis of advice given to commercial landlords and tenants by both the UK Government and property professionals has, rightly, been on flexibility.  To date, this has principally meant flexibility on rent levels, with payment holidays and temporary rent reductions being negotiated.  However, given the repurposing seen in the public sector discussed above, it may well be that commercial landlords will also have to embrace even wider flexibility to keep rental incomes flowing, possibly by accepting that their premises will be put to different uses at relatively short notice (particularly in light of the Conservative government’s stated determination to relax UK planning regulations), which could also include accepting greater fluidity through being more open to tenant assignments or subletting.  

As established retailers retreat from the High Street, should landlords be willing to accept more pop-ups and microbusinesses as tenants?  Should landlords accept less certainty when it comes to the length of terms, potentially through greater use of short-term tenancies or licences, in return for higher rates of occupancy?  As Marks & Spencer continues to close larger stores, the Co-op has announced that it will be opening 50 smaller convenience shops, having found that 70% of adults have relied on their local convenience store for food and other goods in recent months; so should commercial landlords be looking to divide their larger premises into smaller units?  Will smaller, private commercial landlords look to exit the commercial market altogether and convert premises to residential use in readiness for sale? 

Questions such as these have always been asked by property professionals during recessions and times of economic uncertainty, but they have been brought into even sharper focus due to the way the current crisis is impacting not just the economy, but the whole way we go about our lives.

In terms of financial responses to the Covid-19 pandemic creative measures quickly implemented, such as furlough and ‘Eat Out to Help Out’, have proved relatively successful in maintaining economic impetus.  These measures, together with the rapid repurposing of vacant public premises, provide valuable guidance to commercial landlords, tenants and their professional advisers as we move forwards: creativity, agility and flexibility will be key to navigating the ‘new normal’.

If you or someone you know would like to speak to one of our legal experts regarding a commercial property matter call us today on 0800 999 4437 or email enquiries@parfittcresswell.com to take advantage of our complimentary, no obligations, initial consultation.  We look forward to assisting you with your legal needs.