Commercial Property Still Feeling the Effects of the Pandemic in 2022

Throughout the initial period of the pandemic, commercial property experienced a significant upset as almost all workers were told to stay at home and shops, restaurants and offices sat empty. While the UK is pretty much back to business as usual, the commercial property market has yet to show a complete recovery from the impacts of the pandemic.

The ‘death of the high street’ is something that is consistently predicted and regularly disproved but the way we use and interact with commercial property changes regularly, particularly in the face of digital innovation.

Previous research conducted by Property Inspect into empty high street retail space highlighted how empty shopping spaces disproportionately affect different cities. Six months on from that, we’ve conducted research into commercial real estate purchases and changes in use for commercial property to analyse how our use of property is changing and what this means for the market overall.

Commercial Property Market Analysis

Stamp duty data gives us an insight into how the commercial property market is progressing since the early lockdown of 2020. We used this data to compare 2021 figures with 2020 and 2019 to see what the recovery looks like a year on, as well as how its current performance matches up to pre-pandemic levels.

Key findings

• Only 10 local authorities have seen a rise in total sales in the past year, with 7 of these 10 also showing growth on pre-pandemic levels.
• 6 out of 10 areas that have seen the highest growth since before the pandemic have also seen a fall in total value.
• 42 per cent of areas have seen a fall in total sales and 73 per cent in total value in the last year

Overall, the market is down when compared with both 2020 and 2019 and, significantly, the total value of sales rose during 2020 and has proceeded to fall again in the past year. This is likely due to continued Covid disruptions and a move to a more permanent work from home culture.

There are only 10 local authorities where commercial sales are up

While only 10 local authorities have seen a growth in sales in the past year, that rises to 36, or 11%, when compared with 2019 data, suggesting that commercial sales are more distributed in 2021 than in previous years.

Given that a number of major high street chains, like Debenhams and Topshop have emptied out their portfolios, it’s going to be a difficult challenge to fill these properties which could be contributing to lower sales figures. Many councils and property owners will be planning renovation work to break these units down which could then make them more attractive to renters and owners alike.

7 in 10 local authorities have seen a fall in sales value

More significantly than the stagnation in total sales, the value of commercial property sales in 2021 was lower than both 2019 and 2020. Considering the housing market has seen record growth since the 2020 lockdown, this contrast is even more pronounced. This suggests that confidence in the sector is much weaker and competition is much lower for commercial space than it is for residential space.

With the shift to working from home and the covid-fuelled explosion of small businesses that entrepreneurs can start from home, this data could highlight how the nature of work and business has changed thanks to the pandemic. Whether this is a permanent change or one that will simply take a few years to resolve is yet to be seen.

Independent Retailer Growth

Following the collapse of major high street chains like Arcadia and Debenhams, large high street spaces have sat empty for over a year, with no new large in-store retailers stepping forward to replace them. This, coupled with a growth in online sales precipitated by the pandemic lead some to have a bleaker outlook on in-person shopping than usual.

A previous study conducted by Property Inspect estimated empty retail space on city high streets around the country, which was discussed on several local news sites. These news sites have subsequently reshared this data when discussing high street performance in their city, with many articles focusing on the growth of independent retailers.

A study by Local Data Company found that small businesses have proven to be more resilient than chain stores, with independent stores seeing a net growth of 804 units in the first part of 2021. Chain stores, on the other hand, saw a net loss of over 5,000 units.

This is likely due to small businesses being able to take advantage of government support during periods of lockdown, a move to a hybrid of online and in-store retail and furlough support offering some entrepreneurs the opportunity to start businesses while unable to work.

There are 6 indie shops for every 100,000 people in UK cities

In 7 of the top 10 best cities for independent shopping, house prices are higher than the national average. This could suggest that cities with a stronger independent retail culture are more attractive and thus more valuable or that richer local authorities benefit more from independent shopping.

Innovations in Property Use

Our studies into commercial property vacancies and use have worked to highlight how the function of retail property is being innovated across the country. This includes an explosion of independent retailers and the growing trend of coworking spaces.

For example, in Hull, the city with the highest rate of empty shops in December 2021, the council is working hard to attract independent retailers to replace the major chain stores that have recently disappeared from our streets. 

This work, as well as the change in commercial property value caused by the pandemic, has resulted in more experimental property use, as well as an interesting shift in investment. A spokesperson for the council said that investors are less risk-averse and many are taking 2-3 year leases instead of the traditional 20-year leases expected of major chains.

The rapid rise of coworking

Before the pandemic, coworking was a growing phenomenon spearheaded by WeWork, the company that crashed shortly before the pandemic due to multiple scandals. With the onset of the pandemic, the coworking model was all but useless thanks to home working.

However, just like WeWork, the concept of coworking has made a resurgence following the end of Covid restrictions. In February of 2022, searches for “coworking space near me” were more than double what they had been in February 2020, reaching more than 46,000 monthly searches.

Using search data, Property Inspect was able to identify where coworking is taking off the most around the UK.

In 2021, the number of remote workers doubled, and forecasts show that this will not revert.

The trend of coworking is likely to continue through 2022, so companies have an opportunity to adapt and create spaces that serve the needs of these workers and their local communities, granting more security for their businesses and more flexibility for workers.

Commercial Retail Outlook

One of the most significant periods of trouble for the commercial property sector may well be followed by one of the most exciting. With investors and entrepreneurs more open to risks, UK high streets could change significantly. Though most chain stores are moving more heavily online, in-person shopping is still up on internet retail.

Whether it’s independent retailers, coworking spaces or experimental commercial property use, the long road to recovery for the market may bring about a new era of retail and leisure property use.