The retail property sector has suffered more in the U.K. than in continental Europe over the past couple of years, this being more acute since the start of the COVID-19 pandemic; differences in market fundamentals, such as a higher ecommerce penetration, more elevated rent cost, and higher density of retail shops, are part of the reason.

According to real estate mogul Hamad El Wazzan, the office London market who is considered one of the largest and most dynamic in Europe is currently facing three challenges. “The pandemic and its work-from-home consequences, strong competition from flex-office providers, and Brexit are all factors in the decline of this real estate sector”, he added. In his opinion, remote working and travel restrictions have forced a shift in social behavior which translated in a decline of U.K. residential rents. The businessman who is currently working on many commercial and residential projects in Europe as well as in the United Sates believes that the United Kingdom office market will come under more stress in prime metropolitan locations the longer the pandemic lasts.

The Harvard graduate also believes that the reasons behind that decline can be attributed to Ecommerce that grew exponentially during 2020. “The U.K. is a more mature market when it comes to e-commerce. U.K. consumers purchase online more frequently than any other European country with 24% of individuals buying 6x-10x online in the past three months”, he stated. In his opinion, this high e-commerce penetration has affected the performance of physical retailers in the U.K. more significantly than in the rest of Europe, where internet retailing is less developed. “The U.K. has a well-developed infrastructure to support e-commerce growth and fast delivery to customers”, added Mr El Wazzan.

COVID-19 has accelerated many of the issues facing U.K. real estate companies, in addition to creating some of its own. Some of those issues, such as lockdown and travel restrictions, could abate with the pandemic; others, however, could transform the respective sectors. For retail, its e-commerce; office space is dealing with the ramifications from Brexit and more work-from-home; and rental units could have to contend with tenants leaving cities for more space in suburbs or rural areas. How well real estate companies navigate these challenges is still unknown.