The consequences of the lockdown

By Lisette van Doorn

It has been a very uncertain time for the retail real estate market. Prior to Covid-19, the sector was already facing structural challenges due to the growth of e-commerce and other shifts in consumer behavior, but the benign economic environment kept the sense of urgency to act relatively low. However, at the same time, the general uncertainty over the future sustainability of income had resulted in an investment market characterized by a lack of liquidity.

ULI Europe’s latest report, “Reshaping Retail–Accelerating Change”, now forecasts that the impact of Covid-19 will accelerate the restructuring of the retail property sector, even more so in the United Kingdom. The lockdowns have already resulted in a rapid decline in operating income for many retail real estate owners. This, coupled with the concerning economic outlook, will have a major effect on longer-term sustainable rents and vacancy levels and subsequent valuations. 

Our research, based on recent interviews with leading industry players, re-examines four triggers, identified in the original report, that may break the near paralysis in the European retail real estate investment market that had been observed prior to countries entering lockdown periods. These include the economic picture, the European listed sector, banks and private equity.

We believe that for any trigger to kick off the transformation process, a better understanding and clearer outlook is needed related to the stability of cash flows. However, it will be hard to know, at this stage, when that clarity will exist given the ongoing unknowns such as the impacts of the phased lifting of lockdowns across Europe, potential future (partial) lockdowns, the longer-term economic outlook and duration of government support packages.

The investment required to meet safety expectations and make assets fit for purpose again, strongly calls for all stakeholders to come together to collaborate on how the sector can succeed in the longer-term. The ULI looks forward to playing an important part in leading the conversation and ensuring that best practice is shared across the industry as the retail property sector seeks to rebuild following the Covid-19 crisis.