Struggling retailers continue to be a sign of the times with one of Essex’s busiest shopping centres, Eastgate Shopping Centre in Basildon (“Eastgate”), entering administration on 22 November 2021.
Throughout the COVID-19 pandemic overall numbers of company insolvencies have remained low compared with pre-pandemic levels, likely to be driven in part by government measures that were put in place to support businesses during this time.
However, could this be the start of a new wave of insolvencies yet to come?
In accordance with the latest statistics reported by the Insolvency Service, in the 12 months ending Q3 2021, wholesale and retail trade groups had the second and third highest number of new underlying company insolvencies in the 12 months ending Q3 2021.
In the insolvency sector, the term “tsunami of insolvencies” is being branded as the prediction for 2022. In support of this, Euler Hermes (trade credit insurer) has recently reported (October 2021) that business insolvencies are expected to jump 15% (year on year) in 2022.
The Government’s temporary measures preventing the winding up of companies where it relates to unpaid rent under a commercial lease are currently set to continue until 31 March 2022 (pursuant to the Schedule 10 of the Corporate Insolvency and Governance Act 2020) thereby providing tenants with continued (albeit temporary) breathing space. However, there will be a crunch point for many retailers on the horizon and, naturally, commercial landlords are continuing to assess the damage caused to their business/investment portfolio by the pandemic. This is not least exacerbated by the recent news of the Omicron variant and reports that in November 2021 the UK footfall fell by double-digits compared with pre-pandemic levels, notwithstanding Black Friday.
In relation to Eastgate, prior to administration, a number of units had been temporarily repurposed and four of its units were empty with additional tenants (such as H&M) announcing they would be leaving the centre – highlighting the difficulties currently faced by retail landlords.
Andrew Johnson, of FTI Consulting LLP, who was appointed as joint administrator of Eastgate alongside Ali Khaki and Matthew Callaghan also of FTI Consulting LLP, said that the ongoing challenges faced by the UK retail industry are well known and have been further accentuated by the impact of the pandemic and the resulting national lockdowns which have ultimately driven the appointment of administrators.
Sadly, this isn’t the first shopping centre to enter administration following the pandemic. Last year we saw the shopping centre giant Intu enter administration. Intu was one of the UK’s biggest shopping centre groups with 17 UK shopping centres, including Manchester's Trafford Centre and Lakeside in Essex. Intu’s appointed administrators, Interpath, have reported that they propose to hold Intu’s assets for a period of 12-24 months whilst re-financing is concluded and the “pan-European shopping centre market stabilises” to provide time to stabilise post-pandemic cashflows.
Intu and Eastgate’s administrations highlight the pressures that retail landlords are under given the slump in rental income from their tenants and the material reduction in the value of this type of commercial premises. This, the effect of the pandemic and host of other well-publicised issues affecting the retail sector, have led to substantial structural changes in the UK retail market.
However, the forecast is all not all doom and gloom. Structural changes to the retail market have also led to opportunities arising for companies, such as British Land, who are buying up once loved retail parks and shopping centres in order to create “urban logistics hubs”. So far, it has been reported that British Land have spent £189m on sites in and around London as part of their urban logistics development plan. This follows the soaring demand from consumers for online shopping following the pandemic lockdowns.
Accordingly, in our view, the UK shopping centre is not yet dead but it may well need to be re-designed.
the challenges to UK retail are well known and have been further accentuated by the impact of Covid-19 and the resulting national lockdowns which have ultimately driven the appointment of administrators