The Covid Opportunity - how a multi-use model can transform commercial real estate for the better

There is no doubt that the commercial real estate sector has been hit hard by COVID. Many businesses are closing down or looking to renegotiate, cancel or resell their leases. The automatic response during tough economic times is to cut cost and wait it out. However, this is also the perfect moment for landlords and property investors to explore new ideas and business models.

Let’s first consider the market context.

COVID has accelerated the adoption of remote working. As stated by the World Economic Forum, working from home for at least 2-3 days per week will become the norm (if it is not already) for most companies, including corporates. The latest US research reveals that 74% of businesses want some workers to permanently work remotely and business leaders are actively shedding leased office space – hinting that not everyone will go back to the office. It is likely that companies will look to significantly downsize their office space and switch to more flexible arrangements. This will result in a significant reduction in demand for traditional long-term office leases.

According to the Centre for Retail Research, as many as 20,000 shops could close this year as a result of the pandemic. More than a million retail jobs are said to be on the line as coronavirus continues to wreak havoc on the high street. Many high profile business and brands Debenhams, Laura Ashley, Carluccio’s, & Virgin Media have already gone into administration, been sold off or have permanently closed their retail stores.

In contrast, forecasters suggest UK e-commerce will grow in value by as much as £5.3bn in 2020. Analysis from Edge Retail Insight, the forecasting arm of e-commerce provider Edge by Ascential, expects that shoppers will spend as much as £2bn more at Amazon alone to reach a sales total of £31.1bn for the retailer in this market. Wider UK online spending is expected to grow by £5.3bn to reach £78.9bn - representing growth of 19% compared to 2019.

COVID is undoubtedly a seismic event that will transform how we live, work and shop. It is unlikely that we will just go back to normal by Christmas. Even if the risk of death is removed with a vaccine, the cultural and social impacts of COVID are here to stay.