The commercial property market is facing a period of extreme disruption. Low occupancy and tightening budgets due to COVID-19 will leave tenants questioning the benefit of their office space, while retail tenants will seek to reduce or defer rent or mortgage payments. Lenders will therefore exercise extreme caution in new loan origination, with tighter credit conditions and a shift towards securitised loans expected until the economic outlook suggests a stable and positive trajectory.

The slow recovery of revenues as businesses reopen may not be enough to meet existing debt obligations. Without adjustments to loan terms, many businesses are at risk of insolvency. Current loan and mortgage holidays serve as a crucial stopgap but there is also a need for a longer-term plan to extend loan maturities in order to reduce the potential for a wave of defaults and job losses.

The maturity of leading banks’ digital platforms has seen online and mobile banking increase in popularity. This has meant fewer branch visits, driving banks to close branches or redevelop them for mixed uses. This may affect the efficacy of lending in rural areas, where market conditions are unique and require local understanding for long-term success. This trend will open up room for specialised competitors to fill the gap.

• The impact of COVID-19 on the commercial mortgages markets.

• How the pandemic has shifted the property investment landscape for retail and office property.

• How Brexit has slowed economic growth and compounded productivity issues.

• How lenders will respond to the COVID-19 recession and the opportunities and threats.

• This Report focuses on the UK commercial mortgage market, though market size data includes all lending secured by commercial property, including refinancing.

• For the purposes of this Report, Mintel has used the following definitions:

• Retail: Shops, shopping centres, supermarkets, retail warehouses, post offices, bank branches, hairdressers and beauty salons, cafés, takeaways, restaurants and pubs, car showrooms and garden centres.

• Offices: Offices, business units, data and computer centres.

• Industrial: Warehouses and stores, factories and workshops, newspaper printing works etc.

This update on the impact that COVID-19 is having on the commercial property market was prepared on 14 July 2020.

The first COVID-19 cases were confirmed in the UK at the end of January, with a small number of cases in February. The government focused on the ‘contain’ stage of its strategy, with the country continuing to operate much as normal. As the case level rose, the government ordered the closure of non-essential stores on 20 March.

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23rd March. Initially, a three-week timeframe was put on the measures, which was extended in mid-April for another three weeks.

On 10 May 2020, the Prime Minister announced revised guidance, recommending that people who could not work from home should return to the workplace, and giving people more scope to spend time out of the home. Further relaxations to lockdown rules were announced in the week of 23rd May, including gradual reopening of non-essential retailers and increased opportunities for social interaction across households.

By 15 June, all shops (even including those selling non-essential items) were allowed to reopen, and this was extended to the hospitality industry on 4 July, subject to operators being able to implement appropriate social distancing measures.

Economic and other assumptions

Our economic assumptions are based on the illustrative scenario included in the Bank of England's Monetary Policy Report, released on 7th May 2020. The scenario suggests that UK GDP could fall by 14% in 2020, recovering by 15% in 2021, and that unemployment will reach 8% by the end of the year, easing slightly to 7% by the end of 2021. The current uncertainty means that there is wide variation on the range of forecasts, however.

We are working on the assumption that a vaccine will be available by mid-2021, but that there will be continued disruption to both domestic and global markets for some time after that.

As long as there is not a second wave of infections, social distancing measures should be gradually relaxed over the course of 2020, but we don't expect industries such as spectator sports, tourism or foodservice to return to any kind of normality until a vaccine is introduced. In the meantime, the economic disruption will mean that many operators will be forced out of the market across multiple sectors, hitting capacity and demand for commercial space. In markets which were already in decline, we expect this reduction in capacity to be permanent.