The COVID-19 pandemic has created further challenges for the retail property market in Europe but could help speed up a revamp of the sector, according to report by the Urban Land Institute (ULI).

In an updated Reshaping Retail report, ULI said the closure of many businesses has created a new unexpected layer of challenges for the already struggling retail sector “but may pave the way for new and existing players to step in to buy, revitalise, or repurpose those assets”.

The ULI research, based on recent interviews with industry players, stated that the impact of COVID-19 will accelerate the restructuring of the retail property sector, particularly in the UK.

ULI said the lockdowns that have already significantly impacted rental income, the negative economic outlook is expected to continue to impact rental income for a longer period of time, as well as valuations, which will be an important trigger in order for the sector to adapt to a “new normal”.

The report identified a number of potential triggers that could force the market to move forward, including the macro-economic environment, the state of the listed sector, as well as the response from banks and private equity players.

According to ULI, for any trigger to kick off the transformation process, a “better understanding and clearer outlook is needed related to the stability of cash flows”.

”However, it will be hard to know, at this stage, when that clarity will exist given the ongoing unknowns such as the impacts of the phased lifting of lockdowns across Europe, potential future (partial) lockdowns, and the longer-term adjustments for social distancing.”

Lisette van Doorn, CEO of ULI Europe, said the lockdowns have already resulted in a rapid decline in operating income for many retail real estate owners.

”This, coupled with the concerning economic outlook, will have a major effect on longer-term sustainable rents and vacancy levels and subsequent valuations.

”Looking ahead, social distancing and the investment required to meet safety expectations and make assets fit for purpose again, strongly calls for all stakeholders to come together to collaborate on how the sector can succeed in the longer-term.”

Andy Watson, co-chair of ULI Europe’s retail and entertainment product council and a partner at Europa Capital, said: “The various retail real estate markets are in a uniquely difficult period.

”Navigating through this will require communication and cooperation. It will be key for the industry to gather tenants, landlords and their banks around a table – virtual or otherwise.”

Chris Igwe of Chris Igwe International and a co-chair of ULI Europe’s retail and entertainment product council, said: “There is still a lot of uncertainty as to how consumers will respond to the retail experience as countries emerge out of lockdown.

“What is not in doubt is that the retail sector will need to adapt to the ‘new normal’, which will require restructuring of the market to take account of emerging health and safety regulations.”

The previous Reshaping Retail report was published earlier this year prior to the coronavirus pandemic taking hold across Europe.

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