As the Covid-19 pandemic seems to have weakened its strength (at least in continental Europe) the social life of high streets is slowly returning, yet still will have reduced footfall compared to the pre-Covid period. Public transport is still hard hit by decreased commuting and with the fear of contagion, people are more likely to walk to their local high street. Though people will still try to avoid crowds of shoppers for some time, homeworking could provide a boost to local high streets, which means many have the potential to thrive.
This may suit some high streets and shopping areas more than others. More than 80% of global GDP is generated in cities, a share that will likely continue to grow. However, the Covid-19 pandemic will transform the way cities are built, as well as the living and working habits of its inhabitants. To make the best of the current crisis, we should consider this as an opportunity to solve the problems that have long plagued the urban environment.
In the context of very low or negative global interest rates and bond yields, real estate will continue to attract substantial capital flows from investors looking for a positive real return. However, we need to be aware of the changes that our cities could face. Over centuries, the concept of ‘city’ has survived and evolved and will continue to do so.
Traditional stores will undergo a transformation. Online sales have surged and although this trend is partly temporary, it has been strongly accelerated by the pandemic. Stores located in popular locations that offer special experiences and recreational activities will survive the digital revolution. Rental values will be subject to pressure, as more spaces will be used for the storage and logistics of goods sold online.
After 10 weeks of retail being officially reopened in Italy we asked ourselves: are consumers returning to the physical stores for their shopping? Unlike shopping centers, analytic data on the high street is difficult to obtain, so on-site visits are the best way to test the field and we “tested” a couple of different types of high street.
Milan, Corso Vittorio Emanuele (CVE)– the most prime mass market high street in Italy. As you walk down the street in the middle of week, the feeling you get is that we are in the month of August (i.e. when traditionally most Italians are on holiday). The “normal” frenzy of the street is missing just like all the tourists as well as the 3 million commuters that travel in and out of the city every day. Outside a few mass markets stores, a queue of people stand patiently in line waiting their turn to enter. Once inside you find a different world (compared to only 4 months ago): merchandise is maintained in an orderly manner; shop assistants greet you offering to help find what you are looking for and in general customers seem to be enjoying their shopping rather than wanting to leave the chaos as soon as possible. It seems that the new trend in mass markets is reengaging with the customer – a tailor made experience.
Retailers are still trying to collect the first turnover figures and where a store in CVE pre-Covid averaged a turnover of over 10.000 € per day; in the first weeks after the reopening the numbers have been well below these figures. New marketing strategies include online personal shoppers that pick out outfits which can be collected when most convenient. On the other hand, the same have seen an increase in footfall in the smaller, more secondary stores – proximity is the retailers new ally.
Florence, Via Tornabuoni – luxury fashion prime high street in Tuscany and in the top 4 most visited cities in Italy. The city is quiet however the Uffizi Museum has just re-opened to the public with access to 450 visitors together (50% less compared to pre-COVID). As you walk by you hear German, English, and Italian speakers queuing outside. Exiting an important high luxury fashion brand, a customer comes out with 4 big shopping bags – the revenge spending effect? Notwithstanding this, especially the luxury brands are suffering the effect of restricted foreign travel and many have asked for temporary rent reductions which most landlords seem to have granted – the main objective is “keep the lights on”.
In this context, investors are still in the “wait & see” approach, yet keen to invest even in high street retail, albeit with more selectivity. Location and sustainability of rent will drive the investment and new KPI’s underlining leases will be the real hurdle for the near future. Even on the high street market, tenants and landlords will necessarily become partners rather than just counterparties. Data transparency will be fundamental for the success of the investment.
As for the cities, we have already seen the first changes: city centers have increased the number of bicycle lanes; sidewalks have been enlarged to allow for social distancing, restaurants have increased their outdoor dehors to recover the number of tables that cannot be utilized indoors and municipalities have increased the number of roads with limited velocity speed to 15 km/hr. Will these be long term changes? It is probably too early to tell; that said one important impact on the future of real estate is and will be flexibility and repositioning of retail assets – this is without a doubt.