The changing shape of retail in the UK’s cities

As we enter a new phase in the UK’s battle with Covid-19 this autumn, it is clear that the disease will continue to alter how we interact with urban hubs. Historic lows in footfall are piling pressure on retail and leisure operators throughout the country, but most acutely in the UK’s cities. Indeed, data from the UK’s first national lockdown – when all non-essential retailers closed their doors for three months – and its immediate aftermath shows that footfall in city centres tumbled more quickly and has recovered more slowly than in the UK’s market towns. Springboard analysis shows that August footfall in those market towns was 26% off the same period last year. Yet in UK regional cities (that is, excluding London) footfall was 35% lower, and in London the picture was even worse at 60% off the same period last year. The big shift in national working patterns due to the pandemic is crucial to understanding this situation, because it doesn’t only affect office markets. The continuing reluctance of office-based businesses to recall staff to centralised workplaces means that the organic return of office workers will be slow and gradual. Employment in the UK’s core cities is not only more likely to be white-collar than in towns, but it is increasingly more likely that those roles can be performed from home. A slow return Research by Centre For Cities and Locomizer shows that when the UK’s first national lockdown was eased over the summer, workers in cities returned more slowly to work than their counterparts in regional towns. According to their analysis, footfall across 63 of the UK’s largest town and city centres was just 17% of pre-lockdown levels at the end of June, remained at 17% at the start of August and was still at 17% in the last full week of the month. Areas such as Mansfield, Basildon and Newport saw the highest rates of returners, all over 35%, compared with Oxford, Leeds and London, which all remain below 13%. The rise of online spending The stay-at-home message accelerated the increase of retail spend online, which rocketed to 30% in the opening six months of the year, according to the Office for National Statistics. Research from Local Data Company shows that a whopping 83% of all retail units were closed during the initial stages of national lockdown, although the British Retail Consortium reported that August retail sales were actually up 4% year-on-year despite the worrying economic circumstances. High streets rode the wave of goodwill and localism, benefiting from a higher number of people working from home, increasing footfall in the places they live. However, problems on the high street will persist when a more familiar reality begins to emerge. The dynamic between workers and retail spend has been discussed in a recent EG series, Shifting Working Patterns, part of which analysed the outcome of a reduced worker presence on the retail and leisure offerings across the country. In simple square footage terms, on average the UK’s towns have a higher percentage of retail-to-office space (55%) than cities (35%), according to EG analysis of Valuation Office Agency data, with the figures painting a familiar picture when converted to interpret number of units (59% in towns and 34% in cities). As the data shows, retail in town centres has had the benefit of stronger footfall increases as the nation began to slowly return to work – the retail element of those places has been buoyed because of this. With city centre footfall remaining so low, shops and eateries in those central business districts are adversely affected. Permanent closures to come As the indicators suggest, the fate of retail in cities, the size of its footprint and its form will depend on the trajectory and timescale of the effects of Covid-19. With the situation worsening again this autumn, it is likely that more permanent store closures are to follow, as businesses begin to adapt to new realities of suppressed footfall in major CBDs. Pre-pandemic trends will be exacerbated, accelerated by stark trading conditions in the post-lockdown period. Wafer-thin margins have got even thinner. Shopping centres in cities could be particularly at risk in the short term, as consumers decide to steer clear of enclosed, busy spaces, preferring the relative safety of online shopping. Lease flexibility The relationship between landlord and tenant has been under the spotlight more than ever, with retailers pressing for extensions of the rent collection moratorium to ensure solvency, and many trying to force through CVAs to switch to turnover rents. Studying the precise nature of rental obligations in the UK’s core cities, we are able to see how those central areas could be the focus of store closures in the future. According to Radius Data Exchange, both lease lengths and rents for retail premises, while falling, are significantly higher in city centres than in the UK’s towns. Despite the wider exposure of retail space in towns, they will be more readily able to adapt to consolidation than central city core destinations. Combine this with the reduction in footfall for a prolonged period, and businesses will find it harder to retain sites. A clearer picture As mentioned previously, the retail market was in a relative state of flux before the onset of Covid-19. Many of the changes we have seen, and anticipate, have been exacerbated and accelerated. UK cities have myriad challenges when it comes to restoring some semblance of normality. The structural issues surrounding real estate will come into focus going into 2021. How can retailers, leisure operators and food and beverage traders continue to operate when worker footfall and tourism is so suppressed? Vacancy rates are likely to rise. Businesses will have to make the numbers add up, and the data indicates that cities could be first in line for consolidation. Radius Data Exchange analysis shows this trend in action. The previous two years have seen gradual, yet sustained, periods of reduced commercial take-up in the retail sector. It remains to be seen whether there is a marked increase throughout the second half of this year, but in all likelihood businesses will be taking stock of current financial circumstances, with an eye on the looming recession, and deciding whether to stick or twist. To send feedback, e-mail james.child@egi.co.uk or tweet @JamesChildEG or @estatesgazette This and much more will be featured in our upcoming issue of UK Cities, out 31 October Photo © Paul Greenwood/Shutterstock