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 detail the latest real estate insights compiled from Savills Covid-19 tracker in regards to trends seen in the occupier and landlord space and how they are responding. We also detail the latest insights in terms of footfall trends and the outlook for the UK and global economy.

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 were no major shifts this week in terms of how retailers are looking to reduce costs with their landlords. Requests continue to 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.

• We have been able to pull together some indicative insight into the proportion of occupiers who paid their March quarter rent. Based on 61 occupiers (retailers, F&B and leisure operators) where we have been able to establish their position, it is estimated that 62% did not pay their March quarter rent. However, we estimate a significant share of these were able to pay a partial rent. The remaining 38% did meet their quarterly rent obligations, with this list largely made up of those retailers deemed ‘essential’ and have therefore remained open during the lockdown. There were also a handful of well capitalised retailers who also met their obligations despite having closed their sites. This analysis is subject to change as more intel becomes available.

• A new development has been some of the imaginative solutions occupiers are offering landlords in order to secure rent and service charge deferments/holidays. For example, offering a ring fenced share of company profits going forward. It could be the case the current situation could accelerate changes to the traditional leasing model going forward.

• It is important to note, that while some occupiers are pausing expansion there remains a number using the current situation to identify opportunities. These tend to be supermarkets and some well capitalised new entrants.

Landlord insights

• Landlords continue to deal 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.

• One interesting development is that some landlords have asked for historic and future store sales performance in order to agree to concessions. Historically, this level of transparency has been lacking and it is interesting to see landlords take this opportunity to improve that situation.

Headline retail insights

Footfall trends

• In London’s West End, footfall was down 93% year-on-year for week commencing 23 March according to NWEC. This is unsurprising considering the current lockdown.

• Springboard released their footfall data covering the period 22–28 March. The decline in footfall noted last week accelerated with national footfall down 75.1% YoY (-62.8% WoW) as the more stringent social distancing measures came into effect.

• Following some greater footfall resilience due to the presence of foodstores in previous weeks, retail parks saw a marked decline in footfall last week albeit to a marginally lower extent than that in other retail locations. Retail park footfall was down 60.6% YoY (-56.0% WoW) whereas high street and shopping centres were down 79.0% (-62.3% WoW) and 79.3% (-70.1% WoW) respectively.

• Interestingly Springboard identified two clear peaks in activity; on Monday footfall rose by +31.7% from Sunday and on Friday rose from Thursday by +8.8%. It suggests that consumers are using Friday to prepare for the weekend, as footfall on Saturday was then -23.8% lower than on Friday.

• BDO released their High Street Sales Tracker covering the week to Sunday 22 March. While it may seem a little out of date it does provide an indication of travel in terms of retail sales. Sales reported their worst week on record with declines of 37.4% YoY across combined stores and online. This is likely to have accelerated last week.

Retailer, operator and landlord insights

• Hammerson: announced in their latest trading statement that as at the end of 27 March (Q+2 day), they had received 37% of UK rent billed for Q2. Adjusted for rent deferred, switched to monthly payment, and a nominal proportion waived, they have received 57% of rent due. They anticipate both figures to increase as temporary agreements are implemented and further cash is collected. In terms of UK flagships, as at the end of last week, they had received 35% of rent billed for Q2. On an adjusted basis, this equates to 55% of rent currently expected. Q+7 day collections rates for UK flagships destinations averaged 96% during 2019. They noted that significant savings had been identified in property, administrative and service charge cost across all territories, with a reduction of c.40% on average expected for Q2 service charges in the UK & Ireland.

• H&M: have written to landlords asking them to agree to terms that could see them break a store lease with one month’s notice if trading conditions did not return to pre-outbreak levels. In a separate letter to landlords they have also requested that those stores operating on turnover lease models should have their on account rent removed. In addition they are requesting landlords to agree to a variety of rent-free periods on current base rents, a reduction in service charges to reflect drops in footfall and a change to paying rents monthly in arrears.

• Administrations: Covid-19 has exacerbated the issues some occupiers were having prior to the crisis. As a result we have seen some enter administration over the last seven days including Carluccios and Brighthouse. TRG also placed their brands Chiquito and Food & Fuel into administration. We expect to see further insolvency actions over the coming weeks.

Economic insights

• Oxford Economics in their latest global outlook highlighted that the exponential growth of global coronavirus cases has triggered massive policy responses around the world. But in the near term the biggest uncertainty stems from the impact of lockdowns on economic activity.

• The increased use of more stringent shutdown measures means there remains downside risk to Oxford Economics forecast. As a result their forecast that global GDP would contract by over 1% in 2020, is now looking like a more plausible outcome.

• China’s output is starting to pick up as restrictions subside, supporting Oxford Economics view of a bounce back in their activity in Q2. However, this is unlikely to be mirrored in other economies as ‘lockdowns’ come into force/are extended.

• In the UK, the MPC (Monetary Policy Committee) in their last meeting highlighted the economic hit would work through a loss of income for affected workers, the depressing effect of social distancing measures on spending, and falling confidence. The committee also raised the risk of long-term damage if there were large-scale business failures or significant increases in unemployment. With this in mind they stated they were not out of monetary policy ammunition and could ramp up QE if needed.

• In terms of UK retail sales, Oxford Economics are of the view that sales will fall sharply in March and April despite the boost to food stores sales due to households’ attempts to stockpile. Once social distancing measures are relaxed, they believe that we should see a strong rebound in sales, buoyed by a combination of pent-up demand and very low inflation generating robust growth in household spending power. However, this is likely to be dependent on longer-term impacts on the economy.