Covid-19 is challenge for supermalls as well as smaller spaces says British Land CEO
Retail destinations of all sizes will bear the brunt of the economic downturn caused by the health crisis as more and more tenants seek rent holidays, warned Chris Grigg, CEO of British Land.
Speaking about the commercial real estate sector, the leader of one of the UK’s oldest property firms said many stores won't reopen once the outbreak is over.
“What you will see is that in less good places, retail won’t reopen. People are just going to say, ‘I’m sorry but we’re going because we now know what physical [stores] does for us and what it doesn’t’. It is a stress test of your locations and your shops, and what they bring to the community and the retailer both,” he said in an interview with The Daily Telegraph.
Just 10% of the shops across the company’s portfolio are currently open, and there is a long queue of retailers demanding rent deferrals and holidays. To help companies survive during the crisis, the group has deferred £40 million in rents from the March quarter-day, and offered to suspend £3 million in payments for smaller shops.
But not everybody will be offered support. In fact, British Land is expecting food chains like Sainbury’s and Tesco to continue to pay their rents.
“We’re breaking it into several buckets: the people who we expect to pay, like the office tenants, and there will be a bunch of food retailers doing really well, who we expect to pay. There are a bunch of smaller food and beverages [shops] where we are being sympathetic, and then there is a group in the middle, who are under pressure for longer-term reasons,” Grigg explained.
Debenhams belongs to this latter group. The department store group has asked for a five-month rent freeze, a deal that is currently under negotiation with British Land. And while the property giant says it has a “strong balance sheet” and “significant headroom” against covenants, measures like this will have an impact on the business over the short term.
Retail dynamics are likely to look very different when the world comes out the other side of the coronavirus threat, with Grigg predicting more woe ahead for some parts of the sector.
“It won’t always be the obvious thing. The dirty little secret is, everybody has talked about these really big shopping centres, the super-regionals.
“Unibail’s big centres in London [Westfield London and Stratford City] – the big problem for them is that they are just too big. There aren’t enough retailers, they have got too much space and you can’t really easily transform that.”
He believes these destinations have “a lack of rental tension which is going to come into the open over the next couple of years”.
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