The Retail Apocalypse Will Fuel New Competition Amongst Office Landlords
Highstreet retail stores have long been struggling to compete with the ever-accelerating rise of online shopping. The so-called retail apocalypse came to attention in 2017 with the closure of large retailers including BHS, H.H. Gregg, and Toys ‘R’ Us. For many retailers, COVID-19 will be the last nail in the coffin; Arcadia Group, Ascena Retail Group, JCPenney, and RTW Retailwinds have already filed for bankruptcy.
To attract new occupiers, some landlords are turning retail space into offices. British Land will repurpose 2.5 million square feet of its retail portfolio into offices, logistics centres and residential builds. In October 2020, John Lewis was granted planning permission to turn half of its flagship London store into rental office space. Westfield in London plans to convert an empty House of Fraser store into co-working space. Local governments actively support schemes such as these. The Mayor of London launched a £20 million regeneration fund for repurposing unused city centre space, such as empty shops, into low-cost co-working space.
What does this mean for the rest of the real estate market? The retail-to-office conversion trend will add to the oversupply of office space and increase competition amongst commercial landlords. In recent years, space reduction strategies and COVID-19 have increased the volume of empty and sublease office space. CoStar calculates the volume of sublease space available on the US market is at its highest rate since 2005. With growing supply volumes and new entrants, office landlords will need to work extra hard in attracting tenants with competitive pricing and high-quality workspaces.
What else can landlords do to achieve an angle of differentiation? Forward-thinking landlords should be considering the implementation of technologies such as tenant engagement apps, visitor management systems, smart access control systems and space planning software, to provide an attractive workspace for tenants. Witness RXR Realty launching its digital lab, which develops software and applications to improve tenant experience in its properties. For more information on this topic, read the Verdantix report on 10 Predictions For Smart Building Technology In 2021 And Beyond.