Real Estate
The Levelling Up and Regeneration Act 2023
The Levelling Up and Regeneration Act 2023 received royal assent at the end of October 2023 and is part of the government’s aim to deliver revitalised high streets and town centres. It also gives local authorities the power to force commercial landlords to let their property.
Local authorities will be given the option to be able to offer short-term leases of qualifying commercial units via an auction if they’re vacant for more than 12 months. The finer details of the scheme still need to be fleshed out in secondary legislation, but will present an opportunity for tenants to acquire lease of previously unavailable vacant premises.
The retail industry will need to watch carefully to see how some of the more complex practical issues are dealt with (such as how to determine the winning auction bid and how service charge contributions will be dealt with) and whether it has a positive effect on town centres.
Warehousing space
Warehousing space will continue to be a concern for retailers in 2024. Even though the trajectory for raising Minimum Energy Efficiency Standards is currently in a state of flux, warehouse space is anticipated to be in short supply by the end of the decade as warehousing stock is removed from the market because it fails to comply with ever increasing Minimum Energy Efficiency Standards.
It’s estimated that 60% of UK warehouse space will not achieve a B rating by 2030. Retailers need to consider their warehousing capacity and plan ahead, possibly making longer term rental commitments to premium warehousing to avoid significant rent increases.
Greenwashing
With sustainability becoming more important to consumers, retailers will have to do more to make sure they’re meeting their sustainability targets and would be well advised to review the energy efficiency of their property portfolio. The recommendation report attached to EPC certificates is a good place to start.
Retailers should be able to substantiate any green claims in respect of their properties with robust, credible and up-to-date evidence and ensure that future environmental goals are supported by a clear, verifiable and documented strategy to avoid accusations of greenwashing.
Opening hours
Shorter opening hours, either through a reduction in the number of days a shop is open, or a reduction in daily opening hours, are likely to become prevalent as retailers look to save on spiralling energy costs and wage bills, with the minimum wage set to increase to £11.44 from Monday 1 April 2024. Retailers looking to reduce their trading hours will need to make sure they’re not breaching any lease covenants to keep open nor are subjecting themselves to notional rents payable under turnover rent leases for any hours the shops are closed.
Changing consumer habits
Retailers need to be responsive to changing market conditions and will need agile portfolios, allowing them to respond quickly to changing consumer habits. Short term leases, break clauses and contracted out leases will remain the market norm for 2024.