The household names of the sector – Pret A Manger, Itsu, Leon, Wasabi, Caffè Nero etc – have all come under extreme corporate pressure and there has been a rash of CVAs and lease restructuring, which has led to a surge of stock coming to the market.
At a time like this, it might seem odd to be talking about opportunity but there will clearly be a reset of the sector across these two lucrative locations and it makes sense to try and look beyond the current situation.
There are opportunities for both landlords and occupiers. Landlords can have faith that the market will return in these office-based powerhouses. However, pragmatic and flexible solutions are required in the short-term to maintain some form of business continuity until the workers begin to come back in significant numbers.
Rent reductions are a difficult pill to swallow for investors, but looking at a more turnover-based lease model can help ‘keep the lights on’ for existing occupiers while also encouraging new concepts who are waiting in the wings to take advantage of the new affordability of establishing outlets in the City.
Reduced occupational costs will provide welcome relief for existing tenants. For new concepts, the market offers the opportunity to test locations that were once prohibitively expensive on a more cost-effective and risk-shared basis. And being able to take over space that was already configured and fitted out for ‘grab-and-go’ is also a significant plus for both landlord and a new occupier as it minimises start-up costs.
The established operators listed above - and in particular Pret - have dominated the sector during the past 20 years. It’s time for them to be joined by a new generation of operators, and 2020 may prove to be the year when the success stories of the next two decades begin.
Yes, there will be an element of trial and error and not every new entrant will flourish. But for landlords it is a chance to perhaps lock-in to the ‘next big thing’ - whilst generating income and mitigating business rates liability in the short-term.
With an effective Covid-19 vaccine looking like it could be available to the most vulnerable this side of Christmas, the prospect of office workers returning to these iconic locations is becoming progressively more possible.
This will undoubtedly be a tough winter for society and business but by next Spring, we may once again start to see a return of hustle and bustle to the City and Canary as hungry workers seek out morning coffees and pastries and tasty lunches to take back to their desks.