Pre COVID-19, rents in the majority of strong towns and cities were being rebased by approximately 20%; the upshot being increased occupier demand, particularly for established pitches. The overriding opinion in February 2020 was one of optimism, with increased demand and rents stabilising…that optimism was short lived! It is hard to believe that when the shutters came down on the High Street in March 2020 due to the enforced lockdown, that 21 months later we would have witnessed such an uptick in leasing activity. The outlook for many High Streets & Shopping Centres across the UK is in a much better state than most media outlets would have you believe.
How have we arrived here? We believe the reasons are twofold; rebased rents and the introduction of Use Class E.
With the increase in online shopping and gradually reducing footfall; rents in many locations were not reflective of the lower spend. The pandemic has supercharged what ultimately was a long overdue correction. The upshot has been increased demand, particularly for prime units that can be acquired at historically affordable rents. One of the most pleasing aspects of the rebasing is the number of lettings undertaken to quality independent occupiers providing hope that High Streets of the future will move away from the identikit towns we have in the UK. Much like many national occupiers, independents are seizing the opportunity to acquire units previously considered unviable from a cost perspective. This rebasing of rents has coincided with the introduction of Use Class E in September 2020; the impact of which cannot be understated in terms of demand and bringing much needed new entrants to the market.
One example is the growth of Quick Service Restaurants (QSR) requirements for prime High Street units, previously considered unattainable under the old planning system, which is helping to drive much improved leasing performance for Landlords. From our discussions with occupiers, particularly restaurants, there are two key benefits to Use Class E; a vast increase in the number of deliverable opportunities and the significant amount of time and expense saved in not having to endure a drawn out and expensive planning application. Landlords may worry that we have been here before with the Casual Dining boom of recent years, however acquisitions appear significantly more sustainable. Acquisitions are much more selective and data driven than in years gone by and crucially, are at a much lower overall cost base. The core fundamentals of location and costs are just as, if not, more important than ever.
In our opinion, many strong and established High Street locations have hit the bottom of the current rental cycle and offering attractive investment opportunities with the seemingly unrealistic prospect of rental growth now a distinct possibility over the next 2-5 years.
This is of course caveated by meaningful change to business rates, with the proposed changes to the 2022/23 financial year having little to no impact on those retailers with large portfolios; their angst has been well publicised and rightly so in our view. Smaller businesses will undoubtedly benefit from the changes but ultimately the government are still playing round the edges of the full reform required. A second caveat of course remains the direction of travel of the pandemic, but if the last 21 months is anything to go by, the High Street will continue to rise to the challenges presented and evolve accordingly.
For further information on our views on the occupational market, please get in touch with a member of the team; Matt Beardall, Rowen Grandison, Adam Bindman, Mike Willoughby, Harry Silcock and Harry Jeffery.
Read the full Green & Partners 2021 review and 2022 outlook