U.K. Offices and Malls Are Emptying at Fastest Pace in Years

(Bloomberg) — Store and office vacancies are surging across the U.K. as the pandemic hammers retailers and workers stay at home.

The amount of empty space in the U.K.’s malls and stores is rising at the fastest pace since at least 1999, when records began, according to a survey of brokers conducted by the Royal Institution of Chartered Surveyors. The number of brokers reporting higher office vacancy rates was the highest since the depths of the last financial crisis.

U.K. retail landlords were already grappling with falling rents and values before lockdowns accelerated the shift to online shopping and forced more stores to close. The pandemic has also dented the outlook for office landlords as companies grapple with the economic fallout of the virus and question the need for staff to come in to work every day.

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An empty Regent Street in London in December 2020.

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Warehouses were the bright spot in the survey, with more brokers reporting an increase in demand and forecasting rents will rise. The world’s biggest real estate investors including Blackstone Group Inc. have been investing heavily in warehouses, betting the growth in e-commerce will underpin strong demand for distribution space.

“Both the office and retail sectors continue to see occupier and investor demand diminish, with expectations for rents and capital values remaining deeply negative for the time being,” RICS economist Tarrant Parsons said in a statement Thursday. “The industrial sector seems to go from strength to strength.”

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Empty Inside

Workspace Group Plc, a London-based serviced-office operator, said Thursday that about 18% of its properties were empty at the end of 2020, up from about 10% at the end of June, reflecting the impact of customers that gave notice of their intention to vacate earlier in the year coming to the end of their contracts.

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By contrast, Tritax Big Box REIT Plc, a warehouse landlord, said Thursday that the value of its portfolio had grown by 8% since June after the U.K. witnessed record demand for logistics real estate space.

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Here’s a roundup of comments made by agents in the RICS survey:

Kirsty Keeton — Richard Watkinson & Partners in Newark, Nottinghamshire:

“Understandably, the retail and office market has been quiet. Industrial sector is holding up with good demand. Office lettings have been agreed for companies downsizing/reducing overheads, with increasing tech, decreasing office numbers and increasing home working.”

Simon Penny — Altus Group, Norwich:

“Very tough and uncertain times all round. Very little market faith and certainty. Companies that had planned to improve and take on more stock have put plans on hold.”

Duncan Owen — Schroders, London:

“Offices are unduly hit negatively in the short term, and industrial warehousing may now be close to the top of the market for investment values.”

Giles Hall — Orchard Street Investment Management, London:

“The impact of the pandemic has not yet fully filtered through into rent and capital values as government intervention has offset some of the downside. As the support and protection from debt recovery unwinds, I expect office and retail rents and values to fall further, unfortunately, as the full extent of tenant distress becomes clear.”

(Updates with Workspace, Tritax Big Box earnings starting in sixth paragraph)

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