Offices Empty Out Again And Retail On The Rack: The Impact Of Lockdown 2

On Thursday, the UK enters its second full national lockdown, as the government seeks to limit the spread of the coronavirus. The impacts for real estate are already being felt. 

Big London corporate occupiers have already told staff that all but a few of them must work from home from Thursday onward. Already-struggling retail property owners are readying for further pressure as nonessential retailers are forced to close. 

The new lockdown is initially scheduled to run until 2 December, but ministers over the weekend confirmed that if the rate of virus transmission hasn’t reduced by then, it may be extended. The initial full UK lockdown lasted almost four months. 

Both Goldman Sachs and Deutsche Bank have said that only “in-office essential” staff can come in to work from Thursday, a memo seen by Bloomberg said. The two banks employ a combined 13,000 staff in the UK, the majority in London, and their move is likely to be repeated by companies across the capital. 

During the last lockdown, office leasing volumes slowed dramatically, flexible office companies saw enquiry rates drop (before rebounding again) and the ecosystem of retail, leisure and hospitality businesses that service office workers all took dramatic hits to their revenue.

Cafés, restaurants, pubs and bars are closing, although takeaway service is permitted. Nonessential retail will also have to close, leading to calls for support for the under-pressure retail property sector.

More than 75,000 nonessential stores will be closed in London, plus 3,640 pubs, 238 wine bars, 7,556 restaurants, 1,555 personal care businesses like hair salons, and 949 betting shops, according to data from Altus.

Allowed to remain open will be 7,266 superstores, smaller supermarkets, convenience stores and other food retailers, 186 pharmacies, 1,221 banks and building societies, and 193 post offices.

“The second lockdown will be catastrophic for the high street and wider economy and Government must act to provide the emergency support needed to enable retailers to survive and mitigate the damage that will be caused through the commercial property sector and financial system by another drastic cut in rental income,” Revo chief executive Vivienne King said in a statement on Monday. 

Revo is calling for an extension to business rates relief, to cut the tax burden on retailers forced to close; and for the government to subsidise the rent of closed retailers so they can keep paying property owners. The government furlough scheme has been extended to cover 80% of staff costs. 

“The lockdown will also mean that many businesses which over the summer have been able to start paying rent may be unable to continue, meaning more losses will mount on top of the £4.5B losses already sustained by property owners,” King said. 

“We have repeatedly warned government that this is not sustainable and the high street cannot survive based on a mechanism of property owners compromising their own positions, since the capital to invest in our town and city centres will be exhausted.

“This is a responsibility for Government to shoulder. There are simply too many jobs and livelihoods at stake, and the Treasury must provide direct financial support to underwrite some of the lost rental income to protect jobs and prevent the financial contagion spreading through the economy to the pensioners and savers who directly or indirectly rely on retail property for income.”