In order to track these developments and provide some insight into how the market will develop going forward, Savills are issuing weekly updates.

This week we examine the latest outlook for the UK and global economy, what strategies occupiers and landlords are adapting to deal with the current crisis and insights in terms of footfall trends.

In addition, there is commentary from our retail agency team in China in terms of how the situation is improving there, as an insight into how things may recover here in future. Our Business Rate team have issued a separate update on the Government’s reaction to the current situation that will be available on the website in due course.

Economic insights

• In terms of the global economy, Oxford Economics have revised their forecasts down as more countries announced draconian policy measures to limit the spread of coronavirus. Their latest forecasts (issued on Monday 23th Mar) now show the global economy and many major economies entering a deep recession in the first half of 2020. Over the full year, they expect a rate of global growth of 0%, the second weakest rate in almost 50 years. Activity levels in China are rising again as restrictions start to ease but remain well below normal for the time of year.

• Oxford Economics still believe that, consistent with historical experience, the bounce back in activity will be very strong once social distancing measures are relaxed, and monetary and fiscal stimulus combine with a resumption in discretionary spending. Businesses that can weather the crisis should be prepared for a strong end to 2020 and start to 2021, with global growth rising as high as 5% in annual terms.

• Yet, Oxford Economics concede that there remains huge uncertainty in this rapidly evolving environment. Therefore, they have updated their downside scenario to incorporate a worsening of the outbreak, the imposition of social restrictions, and financial stress. Based on this scenario, the global economy would enter outright contraction in 2020, with Global GDP falling by 1.3%.

• For the UK, Oxford Economics baseline forecast is that the UK economy endures a deep recession in H1 2020, with GDP falling by 1.4% to 2.5% y/y in 2020 as a whole. The subsequent rebound in activity should be strong, as the resumption of discretionary spending is supported by low oil prices and monetary and fiscal stimulus. This would provide a boost to 2021 GDP that they expect would grow by 3.7%.

• The Chancellor’s three-month commitment to cover the bulk of pay for workers facing redundancy should reduce the risk that the disruption from coronavirus generates a downward spiral of bankruptcies and unemployment. The fiscal cost could be around £18bn. Deferring Q2’s VAT payments adds another £30bn to the total, while £6bn of new welfare measures were also announced.

Real estate insights (compiled from the Savills Covid-19 tracker)

The Savills retail agency, investment and property management teams have been collating intel on occupier and landlord developments in response to Covid-19 in our Covid-19 tracker. This tracks store closures, those remaining open, proposed initiatives to reduce costs including proposed requests to landlords, trading updates and acquisition activity. The information from this tracker informs the high-level commentary below.

Occupier perspective

• There are a number of common themes across occupiers in terms of how they are looking to reduce costs such as reducing capital expenditure through supply chains and store refurbs, amongst others.

• In terms of rent, requests range from rent holidays/deferments for a typical period of three months, a move to monthly rents and/or adoption of TO rents for the period of the crisis. In terms of service charge, retailers are typically asking landlords for this to be kept to a minimum and paid on a monthly basis.

• On deals yet to complete/recently completed, some occupiers are seeking longer rent-free periods and rent reductions.

• Important to note, these trends are not being seen amongst grocers who are currently trading strongly. Also, there are a number of occupiers taking this opportunity to secure new sites/opportunities.

Landlord insights

• Landlords are largely dealing with occupier requests on a case-by-case basis.

• Typically seeing landlords agree to a three-month rent deferment to be repaid within the next 9–18 months or over the remainder of the lease. There is also a common trend of allowing a move to monthly rents.

• For those landlords that cannot afford rent concessions, there is a willingness to move to monthly rents with a reduced service charge.

Headline retail insights

Footfall trends

• In London’s West End, NWEC reported that footfall was down 72% year-on-year for week commencing 16 March. Daily footfall declining every day.

• Springboard released their footfall data covering the period 15–21 March. High street’s noted largest decline, down 41% YoY and 31% wow. Shopping centres down 25.4% YoY (-20.3% WoW).

• Retail park footfall showing stronger resilience due to the presence of foodstores and grocery panic buying. Footfall down 2.9% YoY (-2.9% WoW). Increases in footfall was reported for the four consecutive days between Monday to Thursday, averaging +2.5% on a weekly basis, and +3.3% annually. This had eased by the weekend with footfall declining on both days on a weekly and annual basis.

• London reported the largest decline in footfall down -31.1% YoY. However, the decline in outer London footfall was more modest than that seen in central London with YoY declines of -21.9% due to more home working.

Retailer & operator insights

• Nike sales expected to drop $3.5 billion due to crisis with revenue falling by a third in the fourth quarter due to store closures, supply chain disruptions and the sporting suspensions. The company's global sales are already estimated to be down 21 percent.

• Inditex is writing down inventory and said sales fell 24 percent this month. The company said it’s too early to quantify the impact of the pandemic on its 2020 performance, but it is holding off making a decision on dividend payments until closer to its annual general meeting, which is scheduled for July. Even so, the group has €8 billion in cash, putting it in a strong position to weather the crisis.

• Burberry warns of dire sales slump as coronavirus spreads. Fourth quarter comparable retail sales now expected to be down 30 percent. The company said it has already seen sales fall between 40 and 50 percent over the last six weeks.

• M&S is already seeing a substantial decline in clothing and homeware sales and will not pay a final dividend for its 2019/20 year. The company has had to manage its costs accordingly but might reassign significant numbers of staff to support the food business.

Insight from Savills China & Asia Pacific retail teams

• The Chinese Government put Wuhan on lockdown on 23 January (Chinese New Year Holiday was 24 Jan – 30 Jan which got extended). Around the same time, most of the workers were required to stay at home, and most of the restaurants and all the gyms and entertainments in China closed their doors to contain the coronavirus spread. Some shopping malls closed, and some adjusted their business hours from 12 hours (10:00–22:00) to 6–8 hours per day.

• Overall, things are getting better every week, but a more robust rebound is going to take some time – consumers are still in the process of returning to normal after what has been a worrying few months. I think a full recovery will probably happen in the second half of the year.

What’s the current status of the market?

• Shopping malls: Consumers are gingerly returning to the shops now the spread of the virus seems under control (in China). From this week, most of the shopping malls adjusted their business hours back to 10:00–22:00 and basically all the tenants reopened to the public. Anecdotal reports suggest big crowds in the iapm mall and IFC mall in Shanghai (difficult to find a parking space and you had to compete for seats at the coffee shops). Apple Store was packed; iPad Pro is out of stock due to the home-schooling (schools are still closed). In IFC mall, shoppers waited in a long queue outside the fashion boutiques of Chanel and Hermès. However, community malls may need more time to get consumers to go back. Some landlords reporting that footfall traffic is still way below their expectation.

• Restaurants: Some restaurants shut down permanently as they were unable to cover labour and rental costs during the lockdown period. For those that survived, they are required to prepare a number of documents for reopening and submit to the government for approval. Once approval has been secured they have been allowed to reopen. There have been delays to this process as different districts (including within cities such as Shanghai) have different regulations. Haidilao reopened all of its 550 restaurants in China last week but with restrictions on crowds with a cap on the number of people sitting at the same table (cap was four people). These rules are made by restaurants, with direction provided by the government. Popular restaurants remain popular after the coronavirus outbreak i.e. one hour waits at some restaurants.

• Gyms: Most of the gyms in China have reopened excluding Beijing. However, in Shanghai, group fitness classes are not allowed, and customers are not able to use the sauna, swimming pool, and shower room due to Shanghai Government regulations. From next week, shower rooms will be reopening in gyms.

• Entertainment: Night clubs and KTV just opened a few days ago in Shanghai and most of the cities in China (still all closed in Beijing), but consumers remain hesitant to go to these places. Cinemas remain closed in Shanghai. Disney Land remains closed while Haichang Ocean Park opened this week.

• Museums and Galleries: Mostly reopened but real-name registration is required.