A panel of experts from the real estate industry discussed the commercial leasing landscape during Covid-19 at Bisnow’s ‘The Big Shift - The Changing Face Of Leasing’ webinar on 16 July 2020.
As expected, data collected by Re-Leased (a property management tech company) across 35,000 commercial tenancies from the UK showed a significant drop in rent collection and transactional volume during Covid-19. Industrial leasing fared slightly better than its office and retail counterparts, receiving only 62% of rent due in June compared to 59% and 42% respectively. Similarly, the overall number of new leases were down by 52% over the past year with a sharp decline in April 2020.
Re-Leased’s data also indicated that during the preceding 12 months the lease term had decreased with the average length now being 29 months down from 46 months. This market shift was noticeably accelerated during Covid-19.
Indeed, the shorter term is consistent with the panel’s observation that the trend is towards more flexible leases. James Edwards (Director, Evans Randall Investors) believes that tenants are willing to pay for this, citing examples such as break rights and options to hand back part of the premises. Simon Betty (Managing Director, City Quarters, Hammerson) commented that this market change has actually been underway for some time in retail leasing due to tenants moving online, using turnover rent as an example.
In reference to office leasing, Jessica Rentzos (Portfolio Manager, Worldwide Real Estate, GSK) has noticed that end users are more aware of their spaces. Occupiers now want increased transparency around the quality and ‘health’ of their premises, such as those regarding airflows, occupation density and BREEAM ratings.
In retail, Simon has seen a heightened interest in the letting of certain assets such as retail parks (where social distancing is more manageable) and outlets (where tenants can distribute excess inventory). Landlords are also increasingly looking at better solutions to operational issues such as adopting technology to manage queues.
Covid-19 has indeed disrupted the commercial leasing market, and in doing so accelerated the macro trend towards more flexible tenancies. Specific operational issues regarding the occupation and use of office and retail premises are also being brought to the forefront. A close collaboration between stakeholders and an understanding of market data will be key in order for the industry to adapt effectively to the challenges brought on by the pandemic.