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.
The new boss of John Lewis has launched a revolutionary plan to save the retailer in which it could open garden centres, junk a longstanding price promise and turn department stores into affordable housing. Chairman Dame Sharon White unveiled the most radical proposals in the chain's 156-year history in a letter to staff, as it battles for stability in the wake of lockdown.
Dame Sharon is also launching a push into services, with plans to let customers rent products instead of buying them, and a major expansion of the company's finance arm which offers credit cards. It could also buy up or open garden centres and create a marketplace for second-hand goods.
We should consider this bold move within the context of a government planning agenda to provide ‘permission in principle’. Boris has recently announced as part of his ‘Build Build Build’ speech that planning regulations will be removed to allow for vacant office or retail spaces to be converted into residential use.
Clearly, there will be a lot of disruptions and businesses opportunities in the coming years as we look to rebuild post-COVID and post-BREXIT.
This was one of our core motivations for creating House of Transformation. We believe that this is the moment to experiment with multi-use real estate models, hybrid (virtual & in person) events and fusions between the green economy and the experience economy. From the blending of commercial asset classes to the emergence of collective rural and urban tech enabled eco-living solutions, there is undoubtedly a new wave of people with the resources and aspirations to live with greater flexibility, authenticity, community, wellbeing and connection to nature.
No one can predict the future. However, what we can say with a greater degree of certainty is that the ability to prototype, test and iterate will help us get to the right answer.
House of Transformation can provide a unique space and platform for experimentation, where we can apply a tech mindset of open innovation, user-centric design, digitisation and iterative data driven product development to the challenges and opportunities that landlords and property owners will face over the coming years.
To learn more and explore a collaboration with us, please contact anton@hotspaces.org