lessons in leisure: what the last year has taught us about change and opportunity
The last 12 months have been the toughest, economically, for our industry and many others, that I can remember. The impact of the coronavirus pandemic has been savage and deep, and yet there have been obvious winners as well as losers during this time.
If you were "online" already or had a strong and well-oiled digital platform for your physical business, you have done well, probably very well since March 2020. Supermarkets, online retailers, the mighty Amazon and Deliveroo and many others have supplied us with everything we need, when we were no longer allowed to walk our high streets, retail parks and shopping centres. Through the 3 lockdowns, we all got used to browsing, ordering and buying online.
Now, as March begins and the weather starts to change to a more positive outlook, the mood is more optimistic. We are still stuck at home but planning and preparing for the day when the children go back to school, when the shops re-open and when we are finally allowed to go out and eat and drink, inside and out, in our bars and restaurants. This current state of affairs is very similar across Europe right now, which I still have to remember we are no longer part of in the UK. So, what is going to happen when the doors open, when people go out again and when things return to a "new normal"?
Without doubt, it's going to be busy, very busy. Depending on who you talk to right now, it's going to be something like Christmas. The question is for how long? Of course, restaurants are going to be booked out, pubs and bars are going to be packed, especially as the weather improves, and our shopping places will be back to busy, as our guests and shoppers return to spend. The economic impact of COVID-19 has been massive along with the awful, tragic loss of life across the world, but there is still a lot of money waiting to be spent. However, simply thinking that we are "going back" to a world before COVID-19 cannot be right. Apart from the ongoing impact on our daily lives, we have all changed, a lot.
We have been deprived of the human contact that we all crave, the time with friends and family and even with our own families, the opportunity to go out and enjoy "places and spaces". It would be so easy to think that things will return to normal, but I can't see it, in fact, what I can see is a huge shift in behaviour and in what people want and how they want to spend their time. The "emotional capital" that has been stored up during this Pandemic will soon be released as well, along with the cash. What I am interested to see is how that will impact on the real estate industry, foodservice and leisure.
For starters, if I was going to be investing in leisure and foodservice, it would be now. We have a perfect storm occurring right now. A previous very strong demand for space in the restaurant industry, rocketing rents and growing foodservice footprints in retail gave landlords the opportunity to switch from "all retail" to "retail with some food". Leisure was not common and not easy to implement and deliver at the right cost and return. Arguments around the benefits that leisure would bring often fell on deaf ears. How things have changed in the last 12 months. The restaurant industry is on its knees, the retail industry the same and the "pre-existing conditions" that were severely impacting retailers have proven fatal. Department stores, major chains and numerous companies have gone to the wall. Too much debt, not enough relevance or a complete online absence has finished off many already sick businesses. So, when we return to our shopping places, our high streets or leisure locations, what are we going to find?
In the short term, probably a reduced choice, lots of closed fascias and shop fronts and difficulty in getting a booking or reservation. Void and vacancy levels in shopping centres are already rising and will continue to do so. Retailers are not surviving and more will sadly leave us. Others who are hanging on might make it. We all hope so, but then what comes next?
Over the last year, I have seen an unprecedented interest in leisure activities coming into shopping places. Obviously, there is a vacancy issue to manage, but also the price of entry has come down. Many landlords no longer have the foodservice industry to "take up the slack" in spare space and are being forced to consider leisure, or if they are more enlightened and forward thinking, they have been working on a leisure strategy for some time, getting ready for what might happen. I am sure nobody thought that it would happen this way, but it has.
Post Covid, I believe we are going to see a lot more leisure in our shopping places. This is going to be partly driven by the need to re-purpose old retail spaces, some of which are huge. Leisure offers the opportunity to let large spaces to operators who can offer something different. It will also be partly due to the fact that owners and advisors want to offer a broader day part, "night-time economy" or social economy in their spaces, whereas before they were "9:00 to 17:00". However, for me, the most important reason is that it will be demanded by the consumers, guests and visitors.
Consumers have changed, and we are much more interested in doing things than buying things or owning things. It doesn't mean we won't own or buy, but even before the Pandemic, the "borrowing economy" was in full swing with Airbnb and subscription models for everything, including cups of coffee, car sharing, rentable music studios by the hour. The evidence is clear - we have moved to an "experience-based economy". Add this to the intensified demand for "shared places", especially as the world becomes more "vaccine confident", despite the continuing need for social distancing. Museums, galleries, cinemas, bowling alleys, play parks, family entertainment centres and many more leisure uses will re-open to huge demand, I am sure. Try getting a ticket to a leisure attraction this summer!
In Berlin, on our landmark project that we are developing with Brookfield, the owners and investors, leisure has always been at the heart of what is going on. The theatres, casino, cinema, shows, foodservice offer and now the Mission Play! by Mattel, means that leisure is a key part of the project. The new retail space, some 46,000 square metres, will be substantial, vibrant interesting and dynamic - in fact, nothing like the old retail space that came before. Just getting that message over to retailers is tough because they think they know the project, but it really is all new. Those retailers that do come and sign with us are certain to find a more dynamic environment, with strong trade, long day parts and powerful weekend placemaking to support their retail ambitions. Leisure has given us a night-time economy and leisure operators bring us a diversity of consumers, guests and users.
We haven't really spoken about cinemas yet, but again, if they can survive the current lockdown closures, there is a bountiful time ahead. Assuming that the massive debt pile that some of them are under doesn't kill them, there is some amazing content waiting to be released and a hungry and eager audience waiting to book the seats. I ask myself how much somebody would pay for a ticket to see James Bond in October, if they even remember what a ticket costs and whether they would notice an extra pound or euro in the price? Unlikely I think, and more to the point, "No Time to Die" is probably going to set a box office record!
So, leisure is here, and here to stay I believe, especially in shopping places. The unique cocktail of empty spaces in centres, the need for landlords not just to fill these, but to improve the offer and attractiveness of their centres and the substantial long-term benefits that can be gained by converting a centre to one with a daytime AND night-time economy, means that leisure is here to stay. The economics are interesting, with lower rents due to the size of the space, contributions for fit out and plenty of other retail and foodservice activity to drive turnover. More players are moving into the market and more money is coming in to support them. Those with strong relationships to the IP owners around the world are likely to outperform others in the market, and the IP owners know that. Those same IP owners know exactly what product they are selling in each country and so they know the "size of the prize" before they open the doors.
The returns are good, sometimes very good, so there will be no shortage of investment, as leisure takes its place alongside retail and foodservice as part of the mix that will provide for our guests in the future. We will see exactly what happens in the next few months, but I am certain we will see some specialist leisure funds, in the same way we have seen foodservice funds, pop up. It's going to get really interesting…
#Staysafe Staywell