Whitbread, owner of Premier Inn hotels, has warned it could axe 6,000 jobs as the pandemic continues to hit demand for hotel stays. This will have a knock-on affect for commercial property landlords as Premier Inns’ covenant is getting weaker, they may look to close several hotels, pull back on their expansion, walk away from opening new hotels and withhold paying rent.
The company behind the 9 strong pizza business has been placed into administration as a result of falling sales. Campbell Crossley & Davis is handling the administration process. Dunstone, the backer of Five Guys UK, had taken full control of MOD Pizza in the UK. This is another casualty brought about by COVID-19 and another blow to the commercial property market and the high street.
Unpaid rent bills from commercial property tenants has mainly come from the retail and hospitality sectors. Many tenants, who have had their rent deferred by their landlords, fear they will not be able to pay the deferred rent when the moratorium ends. Some landlords say many tenants can pay but are choosing not to and are taking advantage of the pandemic. The Government has said “This is not a rent holiday. Rent is still owed, and where tenants can afford to pay they should do so.” UK Hospitality says it is a welcome step and will give much-needed breathing room, but it is only a stay of execution, it is not going to solve the crisis and more support is needed. However, landlords, who are not receiving any rent, who have not received any rent since March and who do not think they will receive any rent for at least another 6 months, are now looking to sell their retail and commercial properties as they can no longer afford to hold these large assets with no income.
The high street, retail sector and commercial property market has been decimated by COVID-19. Lloyds Bank has cut 865 jobs, Pizza Hut will close 67 restaurants resulting in the loss of 1,100 jobs, Heathrow is set to axe 1,200 jobs, Pret a Manger is to axe 1/3 of its workforce, John Lewis is to shed 1,300 staff, Debenhams is to shed 2,500 staff with possibly 11,500 more, Marks & Spencer is to shed 7,000 staff, Oasis announces it is to axe 1,800 members of staff, STA Travel went bust with 500 people losing their jobs, House of Fraser announces more store closures, Yo Sushi to close 19 of its 69 restaurants, John Lewis’ flagship store in Birmingham will never reopen, the restaurant chain Bills is to close 20 of its 78 restaurants, British Airways announced more than 10,000 staff are to lose their jobs, William Hill will shut 119 betting shops nationwide, WH Smith announced 1,500 layoffs, DW Sports plunges into administration putting 1,700 roles at risk, restaurant group Chilango goes into administration, bingo operator Buzz Gala is to permanently close 26 of its sites, Ask and Zizzi cut 75 restaurants, The Casual Dining Group which amongst others owns Cafe Rouge goes into administration, Boots to close 48 shops and lose 4,000 members of staff, Burger King could be forced to close 1 in 10 of its restaurants, H&M to close 170 stores, food retailer Upper Crust to lay off 5,000 staff which is 50% of its workforce, EasyJet announces 4,500 roles are at risk, Royal Mail to ace 2,000 jobs, Jaguar Land Rover to slash another 1,100 jobs, The Restaurant Group which amongst others owns Garfunkle’s plans to close 148 of its 313 restaurants and so on. It is therefore very worrying when some people deny how badly the retail property market, commercial property market and high street have been affected by coronavirus and are still living with their heads in the clouds concerning what their properties are worth. When the market crashes, which has already started to happen and will be more obvious towards the end of the year, it will be very sad to see some of these deniers lose their properties, livelihoods and maybe homes. I say if you are in trouble, and recognize how bad things really are, sell now, mitigate your losses and live to fight another day.
Coronavirus has recently wiped out 700,000 payroll jobs in the UK as the unemployment rate has spiked to 4.1% with 2.7 million on benefits. This has had a knock-on affect on all types of commercial property, especially retail and offices.
As many landlords continue to suffer from not receiving rent, receiving less rent and their properties falling vacant, the future of the high street and retail property market in general continues to look extremely bleak. What is the answer? Its simple and its called “rebasing”. Rents, property values and demand through the retail sector will continue to fall nationwide. Even when this pandemic ends, which could be years, things will never be the way they once were.
For those of you who think the worst is over for retailers, think again. Since the start of 2016, the following retailers have failed: BhS, Beales, Sports Authority, Kendall Mint Cake, Castle Bakery, Hawick Knitwear, Ben Sherman, Brantano, Blue Inc, John Cooper & Sons, Atterley, McEwans of Perth, Trodd Ltd, Furniture Barn and Austins of Derry. This year will be another tough year for retailers and as more struggle, more shops will fall vacant which will cause retail property values to fall.
The commercial property market in general has performed quite well since the start of 2016 but cracks are slowly starting to appear. There are many factors which affect the commercial property market, directly and indirectly, which include the following: (1) interest rates, (2) the stock market, (3) the price of oil, (4) the EU referendum, (5) tax, (6) planning policies, (7) inflation, (8) problems overseas including the USA, China and Russia (9) unemployment and (10) house prices. There are many other factors which also affect commercial property values but those mentioned above are the main drivers. The commercial property market is certainly being adversely affected by the threat of interest rates rising, the problems being experienced in China, the possible exit of the UK from the European Union, stamp duty increases, tax changes affecting buy-to-let landlords and many more.
There is no doubt that commercial property values in some sectors and in some locations are starting to level off and even fall. Many investors are nervous about the market and so are either selling, thinking values have peaked, or are holding off buying anything new.
No-one really knows what the future holds but remember this – if you are likely to face financial ruin as a result of your commercial property falling in value, then when there are signs and talk that this may be on the way, and your commercial property has increased in value from when you bought it, then you would be foolish not to sell.
Sell My Commercial Property are still very keen to buy high street retail shops. Although this sector has still not recovered from the worldwide financial crisis of 2008/2009, and many property investors are still nervous about buying high street retail shops, we at Sell My Commercial Property know retail, like retail and still want to buy retail.
If you own a high street shop, anywhere in the UK, and want to sell, please contact us so that we may make you an offer. It is free and you will be under no obligation to accept our offer.
Carter Jonas is predicting total returns from commercial property will fall to 8.8% in 2016.
This contrasts with total returns of 13.4% this year. The property consultancy said yields were at or approaching previous lows and that capital value growth was unlikely to drive returns as it has done in recent times.
Jeremy Gidman, head of investment and asset management, Carter Jonas, said: “The party of yield compression is largely over – yields are back to their 2007/2008 peak in most areas of the market, and we are unlikely to see yields hardening much further in 2016 due to wider economic conditions.
“The fact that rental growth is coming through more widely should help to sustain the investment market, although it is difficult to see the volume of transactions in 2016 matching the record level we have witnessed this year.”
He also predicted a greater divergence between prime and secondary retail as large numbers of 25 year leases entered into in the early 1990s come to an end.
In central London, the firm predicated that although further yield compression was unlikely, shortages of office space would continue to drive strong rental growth and push total returns up towards double digits. The hotspots in the market could also shift.
Darren Yates, head of research, Carter Jonas, said: “There is a growing sense that parts of central London are expensive and growth will shift towards emerging locations such as Victoria, Battersea and Stratford, as occupiers seek more cost-effective solutions.”
With development yet to pick up in the regions and with steady occupier demand, he also predicted another good year for city centre office markets in places like Birmingham, Manchester and Leeds.
The firm was also positive about the fundamentals of occupier demand and supply in other markets such as industrial and residential.
However, Yates warned that the market could still experience a slowdown.
He said: “Activity may also cool, against a backdrop of the EU debate and the prospect of higher interest rates. It should also be remembered that, seven years after the financial crisis, the market is approaching its natural peak in the cycle.”
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- Even more worrying data in Feb 2011
- Shops in Wales
- High street retail shops are still in demand
- Central London – 1, the Rest of the UK – 0
- Shop Buyers
- Too Many Businesses are Still Struggling