The embattled retail sector was hardest hit by the COVID-19 fallout, with the capital value of retail property falling by a significant 18% in 2020. Nonetheless, some sub-sectors of the retail market showed resilience during 2020, most notably supermarkets and retail parks.

The commercial property market had already begun to enter a phase of structural change well before the onset of the pandemic. The impact of COVID-19 has accelerated many existing trends including the demise of the traditional high street, the rapid rise of ecommerce and urban logistics and a shift towards more agile and flexible work practices.

The adoption of WFH practices during the pandemic is set to have a lasting impact on the office market, with many companies planning to adopt hybrid working models post-COVID-19, where employees will continue to work remotely for some of the time. This is expected to lead to a decline in office space requirements by tenants and greater demand for more flexible office leases. However, the actual impact of new work practices is likely to be sector dependent.

While the pandemic suppressed demand in other parts of the property market, it stimulated logistics sector activity. The accelerated shift to online retail will further boost demand for high-quality, well-located warehouse space. The pandemic has also highlighted the importance of modern, efficient, resilient logistics supply chains, resulting in increased occupier demand. Furthermore, demand from data centre operators is expected to increase as COVID-19 has accelerated the digital transformation of business.

• The impact of COVID-19 on the UK commercial property market and key sub-sectors

• Opportunities and threats across the key sectors of the commercial property market

• How the market is expected to develop over the next five years

• Trends in investment activity across the key sub-sectors of the commercial property market

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. Rapidly rising case numbers led to the first national lockdown, starting on 23 March. It wasn't until 15 June that non-essential stores were allowed to reopen, followed by pubs, restaurants, hotels and hairdressers on 4 July and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a month-long lockdown from 5 November and Scotland introducing a new five-level system of coronavirus restrictions.

Despite these restrictions, however, case numbers continued to increase. All four UK nations tightened restrictions further in January 2021, effectively leading to a full UK-wide lockdown.

On 22 February, Boris Johnson announced the roadmap to an easing of restrictions in England, starting with the re-opening of schools on 8 March, followed by the easing of restrictions on outdoor gatherings on 29 March. Significant parts of the indoor economy and further outdoor settings reopened from 12 April, including non-essential retailers, outdoor hospitality, gyms and hairdressers. On 17 May, indoor hospitality, indoor entertainment venues such as cinemas and the rest of the accommodation sector, including hotels, reopened, but with COVID-secure guidance remaining in place. The roadmap set out a hoped date for the end to all restrictions on 21 June. The Welsh and Scottish governments are taking a slightly more cautious approach to the one planned for England.

On 15 June 2021, the Prime Minister announced that the final stage of easing lockdown restrictions in England is to be delayed from 21 June to 19 July. Boris Johnson said there would be a review after two weeks and he was “confident” the delay would not need to be longer than four weeks. Similarly, the Scottish and Welsh governments have also delayed the further easing of restrictions.

The decision comes amid rising COVID-19 cases, driven by the more transmissible Delta variant. Scientists advising the government had warned of a “significant resurgence” in people needing hospital treatment for COVID-19 if stage four of easing the lockdown went ahead on 21 June. The government said the delay would give the NHS “a few more crucial weeks” to get people vaccinated.

The UK’s vaccination programme started on 8 December 2020, with the Pfizer-BioNTech, Moderna and Oxford-AstraZeneca vaccines licensed for use in the UK. By 17 June a first dose had been given to 42.2 million adults (80.1% of the adult population) and a second dose to 30.7 million people (58.2% of the adult population). The government aims to have offered a first dose to all adults by 19 July 2021, the new target date for lifting the remaining restrictions.

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its March 2021 Economic and Fiscal Outlook Report. After the fall of 9.9% over the course of 2020, the scenario suggests that UK GDP will grow by 4% in 2021 and 7.3% in 2022.

GDP isn’t expected to return to pre-COVID-19 levels until the second quarter of 2022, although this is six months earlier than the OBR forecast in November 2020, mainly because of the faster than expected rollout of vaccines.

Unemployment is expected to peak at 6.5% in the fourth quarter of 2021. As with GDP, this is more positive than the OBR’s November forecast, but the OBR does raise the prospect of long-term scarring on employment, especially in the more exposed retail and hospitality sectors.

Social distancing measures have been progressively eased since April 2021. Nonetheless, the government guidelines as of June remain that employees should work from home if possible, though the ultimate decision now rests with employers.

The terms of reference for this Report concern the UK commercial property market, which includes owner-occupied and investor-owned properties. The Report focuses on investors’ share of the market.

Commercial property is defined as including retail, offices, industrial premises (warehouses and most types of factory) and ‘other commercial’ properties typically used for business purposes, such as leisure (cinemas, fitness clubs and gyms, leisure parks, etc), hotels, petrol stations and other miscellaneous types. The Report excludes other commercial property sectors, such as health and education, museums and libraries, sports grounds, courts and prisons, heavy industrial plants, infrastructure and open structures, such as theme parks.

For the purpose of this Report, the market is segmented as follows:

• 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.

• Other commercial: Bingo halls, bowling alleys, casinos, cinemas and theatres, arenas, concert halls and exhibition centres, nightclubs, hotels, health farms, gyms, sports centres and swimming pools, caravan parks and holiday sites, purpose-built car parks, petrol stations, film, TV and recording studios.

The investment element of the commercial property market comprises a number of different investor types, which are defined by the Investment Property Forum (IPF) as follows:

• UK institutions (insurance companies and pension funds) – insurance company long-term funds, unit-linked life and pension funds, managed property funds.

• UK & Channel Island-domiciled collective investment schemes – authorised and unauthorised property unit trusts and similar, limited partnerships domiciled in the UK and Channel Islands. Includes Channel Islands property investment companies, but excludes insurance company-managed property funds.

• UK REITs and listed companies – companies listed on the main market of the London Stock Exchange and incorporated in the UK under the REIT and Real Estate Holding & Development categories.

• UK private property companies – other companies undertaking activities classified under the 2007 SIC either as “the development of building projects”, “the buying and selling of own real estate” or “the renting and operating of own real estate”.

• UK traditional estates/charities – charities and traditional landed estates.

• UK private investors – individuals, family trusts, high-net-worth syndicates.

• UK other – mainly local authorities and pub owners.

• Overseas investors – all those domiciled outside the UK and Channel Islands, excluding foreign-owned fund managers, insurance companies and pension funds investing UK sourced capital.

“Rental value” of commercial property refers to the rateable value of property. The rateable value of property is the value at which a property might be expected to be let for one year as assessed by the Valuation Office Agency (VOA).