The COVID-19 pandemic has hit economies globally and while the fallout in the UK still needs to be assessed, one sector appears to be feeling the impact the most. Traditional retailers with large estates on high streets throughout the country are announcing store closures and job losses as they struggle to adapt to a new trading environment.
Arguably, this is nothing new. But what the pandemic has unleashed is a supercharged, permanent shift in consumer behaviour away from the high street to online, a genie that could well be hard to put back in the bottle.
But in recognising that the ‘revival’ of the high street in its traditional form is no longer an option, local authorities—many of whom are landlords in their own right—have a unique opportunity to transform our high streets for the future.
Current market conditions
The retail sector has been a tough environment for years. In fact, 2019 was the worst year on record for Britain’s retail sector. However, when all non-essential retailers shut their doors in March 2020, retail sales slid in a record decline.
While most retail brands now have an online presence, even before the pandemic hit, many were slow to develop an e-commerce model, which meant that when lockdown took hold and consumers were confined to their homes, digital laggards were simply unable to compete.
Although stores on most high streets are now open for business and there are signs that retail footfall is increasing, many consumers may never return to the traditional city centre. Retailers are having to contend with a shift to homeworking. As more and more workers continue to spend at least some of their working week at home, footfall in town centres and high streets will almost certainly remain permanently below pre-pandemic levels.
High street retailers are inevitably now feeling the pressure when it comes to immediate cash flow and profitability. There may have been a business rates holiday for many during the pandemic, but financial support in the form of furlough is now being withdrawn, meaning operating costs are rising at a time when footfall has declined from pre-COVID-19 levels.
The impact of insolvency on the high street
What will a rise in insolvencies mean for the high street? The short answer is that any increase will likely escalate the risk of major store closures. There will obviously be a human cost to this as jobs are lost. But closures will also add to the scars present today, more ‘To Let’ boards going up and a sense of malaise and decay will set in.
There will also be a knock-on impact on local authority landlords. Store closures mean many local authority landlords will not only lose rental income, but they will also be liable for business rates on empty properties, insurance and ongoing maintenance costs.
A window of opportunity for local authorities
Local authorities are best placed to understand the needs of their areas and what is needed within their communities, not just in terms of driving footfall, but in terms of overall asset utilisation.
Now is the time for local authorities to help build a better, brighter future for their communities. By using their own vacant properties on the high street, as well as considering purchasing units that become vacant, they can take steps to regenerate and reshape an area for the future.
For example, landlords could look to create local flexible office spaces to reflect the shift to a more flexible workplace environment or build community hubs that provide more accessible healthcare services. Further, rather than letting high streets resemble ‘ghost towns,’ replacing shops and offices with desirable and affordable homes can help revive our urban spaces by repurposing them. Replacing commercial space with residential property could, under conservative assumptions, create 800,000 additional homes.
In recognising that there needs to be a rethink in how high street spaces are used, rather than trying to ‘protect our high street’, local authorities can save towns, city centres and high streets, and build a brighter future for local communities in the process.
Andrew Knowles is senior director, restructuring advisory, Duff & Phelps and Leena Gillespie is development manager, Public Sector Plc