2020 was a difficult year for the commercial property sector with the COVID-19 pandemic causing significant challenges for investors, landlords and tenants. During the first lockdown, investment in commercial property slowed significantly. With surveyors unable to visit developments, the shutdown of the courts and the Land register, among other practical difficulties, completing commercial property transactions was incredibly challenging.
However, as 2020 progressed, the commercial property market has proved surprisingly resilient. In this post, we look at some of the factors affecting the commercial property market in 2020 and matters to look out for in 2021.
Difficulties with rent arrears
The pandemic has affected many businesses, and rent concession, rent recovery and negotiations has been a vital part of our work with both landlords and tenants. The pandemic's financial impact may continue long into 2021, and both business tenants and landlords should seek to keep lines of communication open.
Retail property and the death of the High Street
Retail has been one of the hardest-hit areas of commercial property. Some landlords have reported receiving just 15 per cent of the rent due to them at certain points of the year with High Streets all over Scotland completely deserted. Many of the biggest names in retail shut units temporarily, but some have closed their doors forever due to a boom in online shopping, and the effect of lower footfall as a result of remote working. One of the difficult questions for those involved in the commercial property market is this - when the pandemic is over, will we see the return of shoppers to physical stores?
Repurposing retail space
One of the biggest challenges for retail landlords is that they are often left unable to terminate retail leases under these circumstances while also being unable to recover rent owed to them. However, in 2021 it is likely we will see the repurposing of retail space which could prove to be more lucrative. Could we see the rise of retail spaces used by online shopping giants as logistics hubs? The localisation of distribution networks is an attractive option for e-retailers as it allows them to minimise delivery times by keeping stock close to the end buyer.
The office market
The move to home working has not only had an impact on High Street footfall but on the office market itself. However, according to a recent analysis, 490,585 sq. ft. of office space was transacted in Edinburgh alone over the last 12 months. While this represents a drop of 24.5% on the previous year, only 8% of respondents said they would need less space per employee as a result of working from home.
What we may see, however, is a change in what is expected of office space - including a change in opening hours. With many now seeing the true value of a place to work together, modern workplaces with space to socialise, learn and collaborate may become the norm. Such a change in attitude could present an excellent opportunity for landlords, investors and developers to create exciting workplaces to encourage returning to office spaces.
Specialist Commercial Property Lawyers, Edinburgh
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