How the pandemic changed the evolution of retail and commercial real estate

Few industries are emerging unscathed from the coronavirus pandemic, but the global retail sector has been hit particularly hard. The impact of lockdowns around the world, local restrictions and social distancing resulted in UK retailers experiencing the worst sales in 25 years. Additionally, the pandemic has accelerated the trend away from purchasing goods in physical shops, with e-commerce growing 46% in 2020. The impact retailers have seen on the main streets of urban centers, suburban shopping malls and out-of-town retail parks is lasting and promises to usher in critical changes in how these spaces are used and managed.

Accelerating commercial retail trends

The reality is that the pandemic has acted as a commercial retail trend accelerant for changes already taking place in consumers’ shopping habits. Both retailers and their landlords are facing a fundamental shift in the marketplace, with many retail businesses closing a large number of outlets for good. The real estate owners and the retailers themselves need to work together to reshape their commercial spaces in order to compete with e-commerce.

Already, many landlords are working with retail occupiers to ease the pressure on stores with an increasing number of leases incorporating turnover rents, which closely align rent to an individual store’s performance. During a successful sales period, both parties benefit from the agreement, and during downtimes, the landlord does not lose a tenant that is viable over the long term to an empty space. But turnover rents alone are not enough. The reality is that consumers will continue to shift their purchasing online and physical stores are at risk. During lockdown, consumers were forced to become reliant on online shopping and became accustomed to the around-the-clock shopping, personalized advertising and home delivery so bricks and mortar retailers must now provide a superior in-person shopping experience.

Balancing tenant mix and the landlord/tenant relationship

Whether in a shopping mall or on the main street of a town center, landlords need to work with retailers to ensure physical stores remain attractive and relevant to shoppers. Many are working together to create experiential shopping ‘journeys’. This approach creates an engaging showcase for brands and products, enhancing the personal aspects of shopping by allowing consumers to see, touch and try – often with in-store demonstrations and helpful staff armed with tablets assisting shoppers in finding precisely what they want.

In working to revive retail sites, especially in struggling shopping districts in towns and cities, real estate owners, operators and investors need to look beyond their retail tenants. They must consider developing a more complex mix of occupiers that bring to life the full spectrum of activities in these areas – enabling consumers to live, work and play in closer proximity. The upshot is that, increasingly, landlords are looking to include residential, office, co-working, hospitality, and service industry tenants in developments that previously had more of a complete retail focus.

To manage these changing real estate trends, commercial landlords and occupiers need the right technologies. For retailers to justify paying for physical stores, particularly in shopping centers, landlords will need to demonstrate how commercial spaces deliver value, which will be best achieved by measuring foot traffic and tracking the customer’s journey in and around the stores. For those landlords managing a more diverse set of uses for their properties, many will require software that will enable them to handle the blurring of commercial and residential tenants by providing a holistic view of their leases.

The retail industry has endured an immensely challenging time, but the success of the global vaccine program also brings hope that it can now focus on the road to recovery. However, we are now living in a post-pandemic world which has changed the shopping habits of consumers, and retailers must now reimagine the in-store experience to help entice shoppers back.

If you would like to learn more about our retail management software solutions, please get in touch today.