How the high street decline is driving a shift in the commercial property market

Over the past two years, much has been written about the impact of the COVID-19 pandemic on the retail sector. Since the pandemic began, numerous high-profile UK retailers have disappeared, as businesses that had long neglected e-commerce saw the shift away from the high street accelerate dramatically.

Naturally, amid such upheaval, the bulk of coverage has focused on the struggles of brick-and-mortar retailers and the seemingly never-ending growth of e-commerce firms and digitally-focused delivery companies.

However, one aspect that has perhaps gone under the radar somewhat, but is increasingly prominent as retail M&A adjusts to the post-COVID world, is how this shift has impacted the commercial property market within retail.

As well as fundamentally changing how many people shop, COVID-19 has also shifted the priorities that retailers have from a property perspective. Increasingly, M&A deals are illustrating how buyers are placing a greater focus on out-of-town locations, warehouses and other sites offering the capacity for rapid delivery.

This is a far cry from the days when retailers largely focused on high streets and shopping centres, only focusing on aspects such as warehouse space and logistics as secondary concerns.

Furthermore, as with many of the changes that COVID-19 has made to retail, ongoing shifts in the commercial property market look set to last long beyond the pandemic.

Surviving retailers look beyond the high street
A common claim that has been made virtually since the pandemic began is that it has driven the final nail into the coffin of brick-and-mortar retail, firmly shifting dominance towards e-commerce. While it is true that e-commerce-focused firms have benefited in a lasting way from COVID-19, this is by no means to suggest that in-person shopping is finished.

In fact, there is some evidence that it is beginning to regain some ground that it lost to e-commerce during the early days of the pandemic and that online shopping has declined slightly. Property agent Savills has forecast that the growth of e-commerce will stall this year and that more than 80 per cent of sales will continue to occur physically, in-store.

Rather than in-person retail being on an ever-diminishing downward trajectory, it seems more that the way people shop physically is changing. As with the overall growth of e-commerce, this seems to be part of a shift that was already happening pre-COVID, but has been sped up by the pandemic.

High street retailers have been struggling for years, with a range of factors meaning that many entered the pandemic with pre-existing problems. These issues ranged from a lack of online sales, rental debts to unmanageably large estates of stores, many of which were underperforming as high street footfall dropped.

For many such retailers, COVID-19 proved the death knell and, as a result, vacancies have skyrocketed on high streets and in shopping centres, which have similarly suffered from declining footfall and rising rents.

By comparison, out-of-town retail parks are becoming increasingly popular, with footfall remaining strong. As a result of lower rents than high streets and shopping centres, vacancy rates in retail parks currently stand at around 6 per cent, in comparison to 14 per cent on UK high streets and 16 per cent in shopping centres. Furthermore, according to commercial real estate firm Cushman & Wakefield, leasing activity on retail parks is remaining strong, indicating that take-up of sites located in retail parks has not yet peaked.

However, the popularity of retail parks goes beyond simply the offer of lower rents. According to some market observers, retail parks are particularly responsive to how people want to shop in the post-COVID world. Increasingly, shoppers are looking for an “omni-channel” experience, which offers both the convenience of e-commerce, as well as the more tactile, in-person experience.

Retail parks offer the perfect opportunity for this, with many retailers operating on such parks running thriving “click-and-collect” operations. Click-and-collect allows customers to buy online before picking up in store. As well as offering the luxury of perusing and buying online, click-and-collect enables shoppers to avoid the problem that has plagued online shopping since the beginning: buying an item and then finding that, when it arrives, it just isn’t right.

Retail parks also offer a host of other benefits to shoppers, not least that they are typically far easier to drive to than town centres or shopping centres. Something that has been cited as crucially important in the popularity of retail parks post-pandemic is that they seemingly make shoppers feel safer than high streets (which are often more crowded) and shopping centres (which, being largely indoors, are not as well-ventilated.)

For retailers as well, retail parks offer the perfect opportunity to reshape and preserve their brick-and-mortar offering. As much value as there undoubtedly is in e-commerce, the simple fact for retailers is that shoppers are likely to spend more in physical stores than online, where they more will often only buy the items they intended to in advance. According to Savills, close to 40 per cent of customers who made a click-and-collect purchase in 2019 bought something else from the store when they went to collect their order.

While it may no longer be financially viable to have large networks of high street stores, sites on retail parks can enable businesses to maintain a physical presence with lower rents, while tapping into the advantages of a click-and-collect model.

E-commerce and delivery firms vie for space
The rise of e-commerce during the pandemic, as well as the greater prominence of hybrid click-and-collect retail models, has also meant that demand for space (such as large warehouses, or smaller local fulfilment sites) has rapidly increased. With smaller networks of stores (or no stores at all, in many cases), space is of more importance than ever as a growing number of retailers do more business online.

The growing ubiquity of e-commerce and delivery during the pandemic (although the trend, again, pre-dates COVID-19) has been accompanied by an escalating race to offer delivery as quickly as possible to companies. In turn, this has intensified the need for retailers to acquire commercial property with the scale to store huge amounts of stock and the strategic location to enable next or same-day delivery.

According to research from Knight Frank, online sales are expected to reach £152 billion by 2026 – up by £31 billion on today’s levels – with this increase and the growing demand for quicker delivery meaning that the UK could require an additional 12 million sq ft of space by 2025 in order to keep up.

This is not only being driven by e-commerce giants such as Amazon or logistics firms like FedEx and DHL. Increasingly, app-based delivery players are seeking to acquire logistical space in order to further ramp up their operations.

Food delivery giant Deliveroo has recently partnered with several restaurants to launch a series of “dark kitchens”, huge strategically located sites at which chefs employed by restaurants cook food exclusively for delivery by Deliveroo drivers. Similarly, grocery delivery app Getir, one of the biggest success stories to have emerged from the pandemic, announced in 2021 it would expand its network of fulfilment centres around London from five to twenty.

The race for “last-mile” delivery hubs and well-located click-and-collect sites is driving demand for both inner-city sites and out-of-town warehouses. This is also playing into growing demand for retail park space, with vacant sites offering prime locations for collection, as well as delivery, due to the easy transport links into cities that many retail parks offer.

Not only is the commercial property market being shaped by these trends, the quest to acquire the best logistical locations and develop stronger delivery operations is also playing into company acquisitions.


In January 2022, holding company RDCP acquired food and drink wholesaler SOS Wholesale. SOS is among the UK’s biggest food and beverage wholesalers, selling more than 4,500 product lines, delivering across the UK and exporting worldwide.


While the company maintains offices in Barnsley, the key to SOS’s operations, and undoubtedly a vital factor in RDCP’s move to acquire the business, is the company’s 6,503 sq metre warehouse and distribution centre in Derby, from which it runs its massive, international logistics operation.


Commenting on the deal, RDCP founder and chief strategy officer Iryna Dubylovska said: “This acquisition reflects our strong appetite to expand our presence across different sectors”.


Dubylovska: “We have ambitious plans to grow our assets under management to $1 billion by 2025 and will continue to invest our growing balance sheet capital into promising British businesses that have a consistent and profitable trading history, committed and ambitious management teams and a defendable and dominant market position within their respective sectors.”



Unsurprisingly, Amazon has been among the main drivers of the current retail commercial property market. Not only is the e-commerce giant relentless in its pursuit of commercial property space for its diverse delivery operation, its aim to be a comprehensive logistics firm extends further into its acquisition strategy.


In March 2022, Amazon swooped to acquire UK-based multichannel startup Veeqo, a software company providing services including warehouse management, inventory, order and shipping to small and medium-sized e-commerce firms.


While Amazon has not revealed its intentions for Veeqo post-acquisition, it has been suggested that the company’s technology will be used to further enhance Amazon’s booming marketplace business, through which it enables smaller online retailers to expand their e-commerce offering.


As Amazon continues to grow its commercial property portfolio and warehouse operations become ever more vital to growing numbers of businesses, acquisitions such as this will prove crucial to Amazon’s expansion across the UK.

Investors and property REITs turn to parks and warehouses
The changing face of retail and the growing prominence of warehouses, fulfilment centres and out-of-town parks has, of course, attracted the interest of investors. According to Cushman & Wakefield, 2021 saw twice as much investment in retail parks as 2020, with £3.8 billion invested in 2021, compared to just £1.8 billion the year before.

Elsewhere, the importance of warehouses and the rapidly escalating pursuit of prime warehouse property has led to widespread fears that the UK could run out of available space as soon as next year, with e-commerce, delivery firms and property investment companies insatiably snapping up property across the country.

With such huge and growing demand, investors are pouring money into these types of commercial property, with some prominent property investment firms having dramatically shifted their focus in order to account for the shifts in demand.


Prior to the seismic changes caused by the COVID-19 pandemic, property investment trust Ediston Property Investment Company (EPIC REIT) focused much of its attention on the inner-city office property market. The pandemic changed this strategy, due not only to the huge rise in home-working, but also because EPIC realised that retail warehouses and parks were perfectly positioned to respond to the impact of COVID-19.


In Q3 2021, EPIC announced its new strategy, through which it would seek to sell its office-based assets and re-invest the proceeds in retail parks and warehouses. Announcing the strategy, EPIC wrote that, since COVID-19, “retailers have to consider not only how best to run and balance their online and offline businesses, but also the costs of storage, distribution and returns. For shoppers and shop-owners alike, out-of-town retail parks provide a solution.”


“These retail parks offer retailers a wealth of attractions for owners and tenants alike. Their lease lengths tend to be good, and the flexibility of their units allows for easy upsizing and downsizing as business conditions changes. As a result, vacancy rates tend to be low.”


As far as EPIC is concerned, retail parks “are perfectly placed to provide the joined-up, omnichannel experience that customers want.”


The company made its first acquisition under this strategy in August 2021, acquiring the Springkerse Retail Park in Stirling for £21.85 million. Investment manager Calum Bruce said: “It is our objective to recycle capital from lower yielding assets into properties which are more suited to our intensive style of asset management, and this acquisition achieves this aim.”


EPIC has also been proceeding with disposals, selling the Midland Bridge House office building in Bath for close to £6 million in November 2021. Calum Bruce commented: “This is the first office sale since we announced our new strategy in Q3. Progress is being made with our other office sales and we are actively looking at reinvestment opportunities. We want to acquire retail warehouse assets which are more suited to our intensive style of asset management.”


The following month, EPIC sold two office buildings, 145 Morrison Street in Edinburgh and Citygate II in Newcastle, to investment firm Topland Group for a combined £31.4 million.


Aside from investing in existing retail parks, EPIC has also demonstrated its confidence in the market by building its own 48,000 sq ft retail park in Haddington, Edinburgh. Construction on the park completed in July 2021, with tenants including the Food Warehouse, Aldi, Home Bargains and Costa Coffee.



Another real estate investor that has been busy snapping up commercial property in the UK is Oxford Properties, which recently announced the acquisition of a £202.5 million portfolio of logistics assets from M&G UK Property.


The portfolio comprised seven big-box logistical warehouses, four of which are multi-let and three single-let. Five of the sites are located around London and the South East, with the other two in Birmingham. Collectively, the sites cover around 764,000 sq ft.


According to Oxford Properties’ Head of Investments, Europe Pierre Leocadio, the portfolio acquisition is just the beginning of the firm’s plan to snap up large logistics, distribution and warehouse assets.


Leocadio said that acquiring these large assets forms a “key pillar of our pan-European logistics strategy”, with Oxford Properties saying that it will target deployments of up to £6 billion over the coming three years.


The acquisition was completed through Oxford Properties’ portfolio firm M7 Real Estate. Oxford Properties’ European Head of Logistics and Residential James Boadle explained M7’s central importance to the firm’s acquisition drive, saying the recent takeover demonstrated the subsidiary’s “ability to source and execute on high-quality opportunities in a competitive European logistics market.”


Boadle added: ”Its 200-person, on-the-ground team which is located across 14 European countries gives Oxford wide access to logistics opportunities through a variety of methods including portfolio acquisitions, single-asset aggregation and off-market opportunities.


”This is a competitive advantage that M7 provides which our co-investors are increasingly seeking out as they look to deploy capital into the dynamic European logistics sector.”


The changes that COVID-19 made to retail have been so dramatic that it was inevitable this would be reflected in the sector’s commercial property market. While predictions that brick-and-mortar shopping is dying are extremely premature, the adoption of e-commerce has been so rapid over the past two years that it is even becoming a central part of the in-person shopping experience.

As the retail market continues to adjust to the impacts of COVID and the post-pandemic economy, retail parks and warehouses seem well-placed to enable retailers to best respond to the needs of modern customers: rapid delivery; safe shopping environments; and, perhaps most of all, an omni-channel shopping experience that combines the best aspects of both in-person retail and e-commerce.

With vacancy rates in retail parks low, however, and warehouse space rapidly running out, it seems the only headwind to this rapid property boom is the very real issue of the UK’s lack of space. As the drive to acquire the best sites continues and available space dwindles, the property assets owned by businesses could become an even more vital element of company acquisitions over the coming years.

Meanwhile, as demonstrated by Amazon’s acquisition of Veeqo, the growing importance of warehouses and warehouse management could lead to businesses competing to offer the most comprehensive package of warehousing solutions and services, potentially further driving M&A.

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