The need for stable cash flows has been identified as the main overall trigger point needed to spur investment market.

A new update from the Urban Land Institute (ULI) to its Reshaping Retail report, which was published earlier this year prior to the coronavirus pandemic taking hold across Europe, has now forecast the impact of COVID-19 will accelerate the restructuring of the retail property sector, particularly in the United Kingdom. Apart from the lockdowns that have already significantly impacted rental income, the negative economic outlook is expected to continue to impact rental income for a longer period of time, as well as valuations, which will be an important trigger in order for the sector to adapt to a “new normal”.

The latest research, based on recent interviews with leading industry players, re-examines four triggers, identified in the original report, that may break the near paralysis in the European retail real estate investment market that had been observed prior to countries entering lockdown periods, including:

• the economic picture;
• the European listed sector;
• banks; and,
• private equity.

The closure of many businesses has undoubtedly created a new unexpected layer of challenges for the already struggling retail sector but may pave the way for new and existing players to step in to buy, revitalise, or repurpose those assets.

“It has been a very uncertain time for the retail real estate market,” says, Lisette van Doorn, CEO of ULI Europe. “Prior to COVID-19, the sector was already facing structural challenges due to the growth of e-commerce and other shifts in consumer behaviour, but the benign economic environment kept the sense of urgency to act relatively low. However, at the same time, the general uncertainty over how sustainable income was for the future had resulted in an investment market characterised by a lack of liquidity.”

“The lockdowns have already resulted in a rapid decline in operating income for many retail real estate owners. This, coupled with the concerning economic outlook, will have a major effect on longer-term sustainable rents and vacancy levels and subsequent valuations. Looking ahead, social distancing and the investment required to meet safety expectations and make assets fit for purpose again, strongly calls for all stakeholders to come together to collaborate on how the sector can succeed in the longer-term.”

The report identified a number of potential triggers that could force the market to move forward, including the macro-economic environment, the state of the listed sector, as well as the response from banks and private equity players. The report concludes that for any trigger to kick off the transformation process, a better understanding and clearer outlook is needed related to the stability of cash flows. However, it will be hard to know, at this stage, when that clarity will exist given the ongoing unknowns such as the impacts of the phased lifting of lockdowns across Europe, potential future (partial) lockdowns, and the longer-term adjustments for social distancing.

The report was commissioned by ULI Europe’s Retail and Entertainment Product Council, made up of senior members representing the most influential companies in the sector, which met as part of a virtual meeting on 28 May to discuss the latest findings. 

Co-Chair of ULI Europe’s Retail and Entertainment Product Council and a partner at Europa Capital, Andy Watson, comments, “The various retail real estate markets are in a uniquely difficult period. Navigating through this will require communication and cooperation. It will be key for the industry to gather tenants, landlords and their banks around a table – virtual or otherwise.”

Andy’s fellow Co-Chair, retail adviser Chris Igwe of Chris Igwe International, stresses the importance of understanding likely consumer behaviour: “There is still a lot of uncertainty as to how consumers will respond to the retail experience as countries emerge out of lockdown. What is not in doubt is that the retail sector will need to adapt to the ‘new normal’, which will require restructuring of the market to take account of emerging health and safety regulations. This updated report reflects on the early learnings that have emerged from the lockdown period and we will use this as the basis to continue to learn from best practice that emerges globally.”

Notes to editors

For more information

• Contact: Chris Harris (Director of Marketing and Communications, ULI Europe) by email ([email protected]) or on +44 7909 824760.

About the Urban Land Institute

• The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land in creating and sustaining thriving communities worldwide. Established in 1936, the institute has over 45,000 members worldwide representing all aspects of land us and development disciplines.
• ULI has over 4,200 members in Europe across 14 National Council country networks. For more information, please visit europe.uli.org, follow us on Twitter or follow our LinkedIn page.

About the ULI Europe Retail and Entertainment Product Council

• ULI Europe Product Councils are forums for industry leaders to meet, exchange ideas, share best practices and foster thought leadership in their specific sector of the real estate market. Consisting of a genuinely international membership, the councils provide a unique platform to learn from peers in the same sector who are operating in different geographical markets, as well as help shape the future of pan-European real estate. For more information, visit the ULI Europe Product Council webpage.
• The ULI Europe Retail and Entertainment Product Council is currently made up of senior representatives from the following companies: Apollo Global Management; AXA Investment Managers – Real Assets; Benoy; Benson Elliot Capital Management Bruton Capital; Cale Street Partners; CallisonRTKL-UK; Capital & Counties Properties; CBRE Global Investors; Chelsfield; Chris Igwe International; Colliers International;  Cycas Capital; DTZ Investors; ECE; Europa Capital; Gensler; Grosvenor; Heuking Kühn Lüer Wojtek; Hodes Weill; JLL; JPMorgan Asset Management; LaSalle Investment Management; Meyer Bergman; M&G; Newbridge Poland; Orion Capital Managers; PATRIZIA; Pembroke; Pradera; Sonae Sierra; STIR Architecture; and, Value Retail.