There have been hard lessons for real estate to learn from this year. It has been particularly painful for those in non-essential retail and leisure, which have borne the brunt of restructurings, store closures, occupier collapses and job losses.
However, when we take stock of the highs and lows of the past 12 months, we can see how the industry has remained resilient against the year’s challenges.
There was more cheer from the logistics and industrial sectors, which have broadly withstood 2020’s challenges. Rental growth is rising and rent collection rates remained relatively robust.
But with big strategic overhauls and management changes at various major players during the year, there is reason to believe the retail, leisure and hospitality sectors will ultimately get their mojo back if the right opportunities are seized – even if their estates will turn out looking pretty different.
As we go into the final days of 2020, here are some of the key moments for retail, leisure and industrial real estate from the past year.
January
At the start of the year, troubled department store retailer Debenhams set out the next steps of its store portfolio strategy, as revealed by EG.
Several retail occupiers embarked on tougher lease renegotiations. Sports Direct billionaire Mike Ashley’s Frasers Group, already well versed in these, was no exception: Game outlined plans to close 40 stores, mainly owned by intu and NewRiver; and Jack Wills continued to shut stores, blaming “unhelpful” landlords. Occupiers, including value retailer The Works, were also scaling back their store expansion plans.
February
Unibail-Rodamco-Westfield pared back its development pipeline to formally remove €3.2bn of projects that hadn’t yet been finalised from its books, including, as EG learned, its joint development with Hammerson in Croydon.
The cabinet reshuffle took place, lining up the key players for the events that would unfold later in the year. Most notably, Rishi Sunak replaced Sajid Javid as chancellor, sparking real estate’s hopes for renewed focus on investment into the UK.
The industry was packing its suitcases and getting the sunglasses ready for property’s biggest event, MIPIM, in Cannes. But growing fears over the global coronavirus outbreak threw the event into question. Cushman & Wakefield was the first major player to withdraw from the March fair, swiftly followed by an exodus of firms. The following month, its organisers would go on to postpone the physical trade show to 2021.
March
Intu’s hopes of raising £1.5bn of equity to pay down its near £4.7bn debt pile were dashed after talks with potential investors (namely Hong Kong’s Link REIT) fell through, putting its future in its lenders’ hands.
Retail and leisure landlords started to feel the strain as occupiers prepared to temporarily board up their stores, along with calls for rent waivers.
The UK’s big supermarkets were on the lookout for hundreds of thousands of sq ft in warehousing space, to cope with a surge in stockpiling.
As part of an emergency package of financial measures to help protect the economy from the disruption from the crisis that was unfolding, the chancellor unveiled £330bn of business loans and a business rates freeze.
Days later, the national lockdown was announced, on 23 March, and the industry was forced to adjust to the abrupt shift to homeworking. The next day, the government ordered a moratorium on commercial landlord sanctions, offering a lifeline to struggling retailers and leisure operators ahead of the 25 March rent deadline.
But landlords with their own balance sheet problems – such as intu – called for support to help real estate absorb the impact of the measures.
April
At the beginning of the month, property firms started retrenching by making redundancies, putting staff on furlough and implementing short-term pay cuts at the top.
Debenhams, which had 142 stores at the time, buckled under the added pressure of the Covid crisis and filed for administration. More stores were permanently closed.
Landlords began to take a stand against the larger, well-capitalised retailers that were not paying rent during the lockdown, such as Boots.
Equally, retailers accused some landlords of using aggressive rent recovery tactics. The government responded by banning statutory demands and winding-up petitions against companies unable to pay rent as a direct result of the pandemic.
For that reason, we crunched the numbers on the extent to which the government crackdown on real estate would affect the ordinary citizen’s pension pot. The results showed it will hit individuals – and the public purse – much harder than anyone would have thought.
May
Stores, shopping centres and retail parks got ready to resume trading ahead of eased lockdown restrictions. Major agencies tentatively returned to on-site property viewings.
Orion Capital Managers walked away from a transaction to buy Hammerson’s £400m retail park portfolio, calling off the largest deal for a UK retail warehousing portfolio in a decade. A few weeks later, Hammerson chief executive David Atkins signalled his intention to leave his post after more than 10 years at the helm.
In a sign of the times, Amazon derailed plans for a £300m build-to-rent development at the former Pentavia Retail Park in Mill Hill, after buying the site for a last-mile logistics hub, as revealed by EG.
Across the pond, Warren Buffett mused on the future for retail and offices. “People are developing different habits in retail,” he said. “There’s no question about that.”
As disruption from the pandemic pummelled share prices, overseas investors spotted bargains in the listed property sector. Among these, Canada’s Brookfield Asset Management built its stake in British Land and Hong Kong’s Lifestyle International Holdings snapped up a £50.1m stake in Landsec. Closer to home, Capital & Counties bought a 26.3% stake in its rival Shaftesbury from tycoon Samuel Tak Lee.
June
Networking events stayed firmly off the agenda, with agents withdrawing from Munich’s Expo Real over the prolonged risk of Covid-19.
The government attempted to patch things up between landlords and tenants by introducing a voluntary code of practice, as revealed by EG.
Former Landsec chief executive Rob Noel stepped in to replace David Tyler as Hammerson’s new chairman. We took a look at what his appointment could mean for the landlord.
Despite major initial pushback from landlords, Travelodge – which counts Goldman Sachs and hedge funds GoldenTree Asset Management and Avenue Capital among its shareholders – gained the creditor votes needed to pass its controversial CVA plans after inserting a break clause option. Nick Leslau’s Secure Income REIT, which owned 123 Travelodge hotels, was among those voting in favour of its revised proposals.
Stricken landlord intu, which had received just 29% of rents owed after the lockdown took effect, raced to agree an 18-month standstill on loan repayments with its lenders. But the latter group – which included the Canada Pension Plan Investment Board – refused to budge. The landlord, which employed 2,373 people and owned 17 shopping centres, crashed into administration on 26 June.
Asset managers including Ellandi, Global Mutual, Sovereign Centros and APAM were lined up to run intu’s shopping centres.
The bosses at major listed landlords and developers returned to full salaries, after taking voluntary pay cuts of at least 20% during the lockdown. These executives had either volunteered to donate a percentage of their salaries and fees to charitable causes or reduced their earnings as a cost-saving measure.
July
In yet another CVA decried by landlords, discount retailer Poundstretcher gained approval for its arrangement, affecting more than 337 UK stores.
Retail billionaires – and near-trillionaires – continued to play hardball on rent negotiations. Sports Direct mogul Mike Ashley’s Frasers Group told landlords it did not intend to pay until trading “reaches a level” that it would have “envisaged” when its contracts were first drawn up, as revealed by EG.
EG also reported that Elon Musk’s Tesla had joined the ranks of retailers refusing to pay rents.
Another tranche of jobs was put at risk at the major agencies as they sought to shape their post-coronavirus businesses, with hundreds of roles placed in redundancy consultation.
Westfield London’s plans to turn a vast chunk of its 104,000 sq ft House of Fraser store into swish co-working space, as revealed by EG, gained unanimous consent from Hammersmith & Fulham Council.
After a bumper Q2, Amazon set out plans to grow its global square footage by 50% for the second half of the year. At this stage, the online retail giant accounted for 36% of all UK industrial and logistics take-up for H1, which reached a record high of 22.4m sq ft, according to Savills.
August
Early in the month, warehousing giant SEGRO disclosed that it had secured more than £1bn of new equity and debt financing in the first half of the year, including a £680m placing to fuel its acquisitions and development pipeline.
Underscoring the widening gulf between sectors, Hammerson turned to the market for a different reason the next day. The landlord set out plans for an emergency rescue package, including a £551.7m rights issue – with shares issued at a near 95% discount to the previous day’s closing price.
Adding to Hammerson’s woes was tenant New Look, which launched proposals for a CVA to “reset” 402 UK stores to a turnover rent model and retain 68 stores under nil rent.
The fashion retailer’s claims that it had engaged with the BPF on its plans were scathingly rebuffed by the organisation, which said the restructuring “fails to meet our best practice standards for CVAs and contains terms that property owners will object to”.
September
British Land named chief financial officer Simon Carter as its new chief executive, after an almost seven-month search for Chris Grigg’s successor.
New Look’s divisive CVA went on to secure the majority of creditor votes. A legal challenge, brought by its landlords, is set for a trial date in March 2021.
Material uncertainty clauses for all UK valuations, including retail, were finally lifted. This happened a month after MUCs were relaxed for offices. Clauses for student housing were lifted in July, while those for industrial, logistics and BTR were eased in June.
In another sign of the times, two Liverpool shopping centres – once tangled in a legal dispute when Nationwide sold the loans against them after the global financial crisis – were put up for auction at a fraction of their former value.
The month was bookended by another big management appointment at a major landlord: Hammerson hired Rita-Rose Gagné as its chief executive, replacing David Atkins.
October
Landlords of a property syndicate set out to reclaim the keys to stores occupied by billionaire Philip Day’s Edinburgh Woollen Mill Group, as revealed by EG, hitting back against its preparations for administration after months of refusing to pay rent.
Landsec’s new chief executive, Mark Allan, charted a new course for the REIT, which included revising its development projects, a £4bn disposal strategy, potential expansion into new sectors, including urban logistics, and a talent drive.
Figures from Radius Data Exchange revealed that almost 65% of retail and food and beverage leases signed in 2015 will either expire or have breaks between 2020 and 2025, which could deliver up to 975m sq ft back to the market.
Data centres have been one of the star asset classes this year. In some cases, the scope for development projects has outshone even industrial and logistics. In a potential sign of things to come, Panattoni lodged plans to turn a former Sainsbury’s depot in Hertfordshire – initially intended to be a spec sheds scheme – into a data centre, in response to a pandemic-driven rise in demand for digital infrastructure.
The John Lewis Partnership confirmed its plans to enter the BTR market to diversify its offer, having set out its aims to convert excess retail space into affordable housing in July.
Around a fortnight later, the retail group won planning approval to turn up to nearly half of its iconic Oxford Street flagship store into office space.
November
Days before England’s second lockdown took effect in the first week of the month, a panel of leading retail experts, including former Iceland boss Bill Grimsey, gave evidence to the Housing, Communities and Local Government Committee addressing the mammoth challenge of supporting town centres through the crisis.
URW’s proposed €3.5bn equity raise, which formed part of its €9bn “Reset” strategy, was rejected by shareholders after activist pressure from former Unibail chairman and chief executive Léon Bressler. The campaign is thought to be the first to successfully challenge a CAC 40-listed company’s board recommendations in the past decade.
It has been a tough time for hotels. But veteran hotelier Sir David Michels, who has worked through five recessions over the course of his career, is confident the sector will survive the crisis. He told EG why he expects that a travel boom will drive its recovery.
As the UK government stepped up its efforts for a mass vaccination programme, EG revealed that around 46 commercial sites in England were being lined up to serve as NHS vaccine centres. Sources expect that the number of venues will grow to as many as 300 in early 2021. Retail parks and shopping centres are under consideration, as well as other types of leisure locations.
Black Friday was the prelude to a particularly tumultuous week for retail. In the space of a few days, Topshop owner Philip Green’s Arcadia retail empire collapsed; menswear retailer Moss Bros launched a CVA proposal; …
December
… Debenhams went into liquidation; and Bonmarché joined its fellow EWM Group brands in administration.
We found that the double blow of Arcadia’s administration and Debenhams’ liquidation could bring up to 16.6m sq ft of empty retail space back to the market. British Land, Standard Life and Hammerson were among the landlords that were most exposed to store closures.
After the UK’s supermarkets faced heavy criticism for benefiting from some £2bn in rates relief during the year, given that sales surged during the pandemic, Tesco handed back its £585m rates holiday. The early Christmas presents for the government kept coming in, with several others, including Asda and Sainsbury’s, quickly following suit.
Going into 2021, advisory firms have some big opportunities to bid for. The Cabinet Office issued a call for tenders on providing real estate services for its £500m Crown Commercial Service framework, used by hundreds of bodies including HMRC, the Government Property Agency and DWP, as well as local councils and devolved bodies across the UK.
CCS told EG the framework is “a significant area of spend”, with “plenty of potential opportunities for suppliers of all sizes”.
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