Trading Places – A point of no return for commercial real estate? What does the future look like for landlord and tenant?

It is amazing how quickly half-truths can become cliched and considered as concrete. Commercial landlords will certainly already be tired of the countless column inches committed to condemning Covid-19 for choking the life out of traditional retail models.

No one is denying that the succession of societal lockdowns has played a part in accelerating a decline, but the reality is that the demise of the sector had begun long before the concept of social distancing arrived on the UK’s streets.

Take, for example, John Lewis’ recent announcement that it would be permanently closing eight of its stores. While the media headlines were quick to attribute the cause to coronavirus, the retail giant itself acknowledged the shops in question were “financially challenged prior to the pandemic” and that it expected 60-70 per cent of its future sales to be made online.

In brief, Amazon and internet shopping are not phenomena borne by Boris’ “stay at home” mantra or the global events of 2020. The trend for perusing and purchasing products online rather than on the high street or at an out-of-town shopping centre can be traced back to the mid 1990s and it is now more than two decades ago that John Lewis joined the retail revolution and became a digital vendor.

That online shopping is older than most perceive is of course little consolation to those businesses now having to accept retail’s new world order or the landlords becoming increasingly concerned about bearing witness to a mass exodus from their property portfolios.

Ironically, it is two of the chief protagonists applying the pinch to retail’s old guard that could prove the latter group’s saviour.

Those premises long courted for retail warehousing – buildings situated away from the immediate gnarl of commuter traffic but still within easy reach of homes – represent an appetising proposition for those companies facilitating the rise of online trading.

I refer not to the creative or coding talents behind the internet’s much frequented virtual shop fronts, but the organisations responsible for getting goods from your digital basket to your physical doorstep and the facilities that allow online marketplaces to operate.

For the former, the distribution businesses who need a stepping-stone between depots and the final point of delivery, the appeal of satellite sites is clear. They have an increasing need for logistical sweet spots to facilitate courier companies charged with a supply chain’s “last mile”.

Similarly, these tried-and-tested locations for servicing urban hubs are also ideal for data centres – the building behemoths keeping e-emporiums live and fuelling commerce in cyberspace.

Specialists in delivering data rather than dining suites or weekly shops, operators of these facilities increasingly desire sites closer to the areas they serve; places already well-catered for in terms of available space and power and promising a reduction in latency and hike in service speeds.

Retail’s shift in need is already causing ripples and will undoubtedly drive significant change across the country’s commercial estate. However, with change comes opportunity and a trend of historic out-of-towners – those in the business of distribution and data – trading places with the current tenants (manufacturing and retail warehousing) situated on the outskirts of our cities could provide a sustainable solution for all.

Facilitating this migration is not, of course, as easy as simply exchanging sets of keys and contracts.

Any “house swaps” will require a degree of repurposing of buildings. Even in the case of logisticians, who use similar racking set-ups to those found in most other warehouses, there is likely to be a need for an improved specification of flooring to accommodate high bay racking solutions.

As ever, a change of use poses something of a dilapidations dilemma for both landlords keen to preserve the value of their investments and outgoing tenants seeking to minimise exit costs.

At HartDixon we can help ease the headache of this proverbial “last mile” of a lease, which is often perceived to be overly complicated, expensive and drawn out.

Our specialists may not use a fleet of vans to visit our clients, but they do offer a “prime” service (apologies for the pun) when it comes to both delivering dilapidation settlements efficiently and effectively and also repurposing buildings to deliver investment value.