Online retail penetration in the UK is set to be the highest in Europe over the next three years, spelling trouble for retail landlords.
According to new research from Moody’s Analytics, 25 per cent of the UK’s total retail spend will be generated online by 2023.
In comparison, Moody’s expects average online sales penetration across the rest of Europe to be just 15 per cent, though this is up significantly from the 10 per cent predicted before the pandemic.
This shift online is expected to be bad news for the country’s retail landlords, who Moody’s expects will be forced to drop retail rents between “15 and 25 per cent in the next few years to make them more affordable for retailers” and adjust to weaker demand.
Aside from diminishing demand for physical retail space, landlords must also contend with continually high business rates and the increased use of Company Voluntary Arrangements (CVAs) to aggressively negotiate rent reductions.
Moody’s analyst Ramzi Kattan said: “UK retail landlords are beginning to take a different approach to leases using a more flexible structure, similar to continental leases, with either shorter leases or more break clauses and a higher proportion of variable rent linked to sales or footfall.”
Earlier this week it was reported that online sales could overtake physical sales for the first time this Christmas shopping season.
Analysts estimated that while overall sales would remain flat at £78 billion, online sales could account for a whopping £39.17 billion of that.