During the past decade there has been a string of high profile retail exits from the high street. However with the onset of the COVID-19 pandemic and subsequent lockdowns, we have seen a raft of further brands shutting up their shops for good.
Alongside these closures, there has been a running narrative that physical shopping is dying, which was magnified during the various lockdowns. However, we have found that there is still plenty of appetite for retail space, and that it’s not all about converting to residential. In the midst of the lockdowns, some suburban high streets received a work from home boost as people shopped in their local town centres more than ever before. It is also evident that the interest is location specific, as some town centres still remain extremely challenging due to high vacancy rates and low occupier demand.
Two years ago we were preparing to go into the first national lockdown, which coincided with the announcement that The Carphone Warehouse was closing its doors across the UK for good.
This was the beginning of three significant disposal programmes that Colliers’ Retail team has handled over the last two years for Thorntons, Santander and Carphone Warehouse.
Each instruction was similar however the advice Colliers gave was diverse, having consideration for the complex and turbulent retail market over the last two years.
The trio of disposals
In April 2020 at the start of first national lockdown Carphone Warehouse announced it was closing its standalone stores forever. Colliers had serviced this client throughout its growth and now the next stage of its evolution to an online and in-store offer within Currys, acquiring shops for the brand for over 25-years and handling lease advisory work, before being instructed in the disposal of almost 300 remaining stores.
At the time that these came to the market, there was very little occupier demand for the stores and subleasing was not an option. The only solution was to facilitate surrenders of leases by paying a premium to exit. While this wasn’t an ideal time for landlords to surrender a lease and take on a vacant unit, many were uncertain of receiving any of their usual rental income, with some landlords reporting only 29 per cent rent collection for Q1 2020. We managed to negotiate surrender premiums that were balanced and suited both parties. We have now successfully disposed of the majority of Carphone Warehouse’s units, with only 15 available two years later.
Just 12 months later in April 2021, chocolatier Thorntons announced it was exiting the UK market, closing all remaining 42 stores. The retail market was completely different as the country had emerged from a third lockdown with the positive news of a vaccination role out programme. This time round landlords were more resistant to quick surrenders and wanted a solution presented to them that included a replacement tenant and were significantly less willing to accept clean surrenders. This was an extremely turbulent market to navigate as each deal was very location and landlord specific.
Thorntons therefore needed our expertise to understand the differing circumstances for each property and landlord. For example, many landlords were still suffering a large decline in income as tenants were still protected by the moratorium, while others were receiving regular rental payments. Similarly, some locations were seeing new occupier demand and replacement tenants were easier to come by, whereas other locations were suffering significantly. This meant that instead of offering a lump sum premium, we often had to work on lining up new tenants to take on the leases following Thornton’s surrender. We successfully disposed of all 42 units within five months.
In May 2021, we were instructed by Santander to dispose of 103 branches, which included a mix of freehold and leasehold tenures.
For the leaseholds, landlords were largely unwilling to accept clean surrenders and they were comfortable to sit on income from Santander due to the strong covenant. We had to find creative solutions to dispose of these branches, which have largely involved remarketing, identifying the potential new occupier and negotiating surrenders and regrants to new tenants.
Creative disposal strategies
What has been notable on this disposal programme is the appetite for space in London suburban locations, including both wealthy and less affluent areas. We have received a huge number of enquiries from a mix of independent operators and national retailers, in some cases with an incoming national operator paying Santander a premium for an assignment.
For each client our strategy changed, responding to the fast-evolving mood and sentiment of the retail market during two years of stop-start lockdowns. Creative solutions, strong contacts and an understanding of the pressures owners and occupiers are under can make all the difference to the outcome for both landlord and occupier.
About the author
Megan Orr is a senior surveyor in the retail agency team at Colliers. She works with occupier and brands accross the UK.
To contact Megan, email Megan.Orr@colliers.comshe works with occupier and brands accross the UK