Is Investing in UK Retail and Commercial Property Still Viable? A Post-COVID Strategic Review

Walking down any high street in the UK, an investor might feel a sense of unease. The sight of shuttered shops and “To Let” signs naturally begs the question: is investing in retail and commercial property a relic of a bygone era? The common narrative suggests that e-commerce and hybrid work have permanently fractured the foundations of this asset class. Many believe the only path forward is to divest and retreat from the high street altogether.

But what if this perspective is incomplete? What if the key to viability is not about finding the last remaining “safe” asset, but about fundamentally changing the way we approach commercial property investment? The post-COVID landscape hasn’t just created challenges; it has accelerated a structural transformation that presents new, significant opportunities for those willing to adapt. Success is no longer found in passively collecting rent from a static building with a long lease. It’s found in operational agility, tenant-centric models, and strategic asset management.

This strategic review moves beyond the headlines to provide a consultant’s framework for navigating this new reality. We will dissect the critical levers that now define success, from leveraging new planning regulations and agile rental models to implementing robust risk management and capitalizing on emerging work trends. This is your guide to understanding and mastering the new rules of the game.

To navigate this complex but opportunity-rich environment, this guide breaks down the essential strategic shifts you need to master. The following sections provide a clear roadmap, from foundational legal changes to advanced investment models.

Class E Use Class: How Easier Is It Now to Convert Shops to Cafes or Offices?

The single most important regulatory shift for UK commercial property investors is the introduction of the new Commercial, Business and Service use class, known as Class E. Before this change, converting a shop into a café or an office was a cumbersome process, often requiring a full planning application. Class E effectively merges these uses (and more, including gyms, nurseries, and clinics) under one umbrella. This grants property owners unprecedented operational agility.

For an investor, this means a vacant retail unit is no longer just a shop. It is a flexible commercial space that can be quickly pivoted to meet market demand without the delay and cost of a planning application. If a retailer leaves, the space can be marketed to a café chain, a local solicitor’s firm, or a healthcare provider. This ability to change use fluidly dramatically reduces void periods and expands the pool of potential tenants, making the asset inherently less risky and more valuable. This legislative change is a direct enabler of the “asset-as-a-service” model.

The impact is already clear, as recent data reveals a 131% increase in three years in Class E to residential conversions under Permitted Development Rights (PDR). Further liberalisation of these rights, particularly Class MA, reinforces this trend. As the JLL Research Team notes, for applications from March 2024, the previous limits on floor space for conversion and the requirement for the building to be vacant have been removed, further accelerating the potential for asset transformation.

High Street vs Retail Parks: Where Are Shoppers Actually Spending Money?

While the narrative of the “death of the high street” persists, a more nuanced reality is unfolding. Consumer behaviour has shifted, and understanding this new geography of spending is vital. The pandemic accelerated a move towards convenience, accessibility, and space. This has led to a notable divergence in performance between traditional town-centre high streets and out-of-town retail parks.

Retail parks, with their ample free parking, larger store formats, and click-and-collect-friendly infrastructure, have proven remarkably resilient. They cater directly to the modern consumer who values efficiency and a friction-free experience. This is not just a temporary shift; it reflects a fundamental change in how people integrate physical shopping into their lives. For investors, this means that the blanket term “retail property” is dangerously misleading. The sub-asset class of retail parks is currently demonstrating superior performance.

The data supports this trend. While high streets struggle with footfall, British Retail Consortium data shows that UK retail parks saw a 2% year-on-year footfall increase in February 2025. This resilience indicates that shoppers are not abandoning physical stores, but are choosing their destinations more selectively based on convenience. An investor’s portfolio should reflect this reality, re-evaluating the risk profile of high street assets versus the stability offered by well-located retail parks.

Turnover Rents: Why Are Tenants Demanding Rents Based on Sales?

The traditional long-term, fixed-rent lease is increasingly being challenged by a more agile and collaborative model: the turnover (or percentage) rent. In this arrangement, the tenant pays a lower base rent, supplemented by an additional amount calculated as a percentage of their gross sales once they exceed a pre-agreed threshold. This model transforms the landlord-tenant relationship from a transactional one into a strategic partnership.

Tenants, particularly in the volatile retail sector, are demanding this model to mitigate their risk. It ensures their largest fixed cost—rent—is directly tied to their performance. If sales are low, their rent burden is manageable; if sales are high, the landlord shares in the success. For landlords, this might seem like a risk, but it offers significant advantages. It can attract higher-quality, growth-oriented tenants who are confident in their business model. It also gives the landlord a vested interest in the success of the location, encouraging better property management and marketing to drive footfall, which benefits all tenants.

Initially common for anchor stores in shopping malls, this model is expanding. As Baker McKenzie’s analysis highlights, turnover rent arrangements are becoming more prevalent for other stores within malls and are slowly making their way to high street retail. This shift requires a more sophisticated approach from investors, who must now be able to analyze a tenant’s business plan and sales projections, not just their balance sheet. It is a move from simply leasing space to investing in a tenant’s business.

Tenant Solvency: How to Check If a Retailer Is Likely to Go Bust?

In an environment of flexible leases and turnover rents, the financial health and long-term viability of a tenant become paramount. A low vacancy rate is meaningless if tenants are constantly on the verge of collapse. The post-COVID era has exposed the fragility of many business models, making robust tenant due diligence more critical than ever. The risk is not abstract; data from Mazars shows 2,195 retail insolvencies in the UK in 2023/2024, a 19% year-on-year increase.

Traditional credit checks are no longer sufficient. A modern investor must perform what can be described as “tenant viability forensics.” This involves a much deeper, more strategic analysis of a potential tenant’s entire business model. Does their product have a clear market position? Are their customer acquisition costs sustainable? Most importantly, how sophisticated is their omnichannel strategy? A retailer that sees its physical store as an integrated part of an online ecosystem—for brand-building, customer service, and logistics—is far more likely to succeed than one simply trying to sell goods from a shelf.

This forensic approach requires a shift in the investor’s skillset, moving from a purely financial assessment to a strategic business analysis. It’s about betting on a business model, not just a brand name.

Flats Above Shops: How Adding Residential Units De-risks Commercial Investments?

One of the most effective strategies for de-risking a traditional commercial asset is “value-stacking”—adding different types of use to create multiple, non-correlated income streams. The classic and increasingly profitable example of this is developing residential units above ground-floor commercial space. This mixed-use approach transforms a pure-play retail or office investment into a more resilient, diversified asset.

The financial logic is compelling. While the commercial unit’s rent may be subject to market volatility and tenant performance, the residential rents provide a stable, consistent, and counter-cyclical cash flow. During an economic downturn where a retail tenant might struggle, the demand for well-located housing often remains strong. This diversification smooths out revenue and significantly lowers the overall risk profile of the property. The financial upside is significant, as industry analysis indicates that mixed-use properties can offer rental yields between 7% and 16% of the purchase price, often outperforming single-use assets.

Beyond the financial benefits, this model creates a symbiotic ecosystem. The residents provide a built-in customer base for the commercial tenants below, creating a vibrant, “15-minute city” micro-environment. As David Smith, Head of Americas Insights at Cushman & Wakefield, points out, this is the future of successful urban development.

Mixed-use developments that prioritize convenience, social engagement and entertainment will be key to urban success moving forward.

– David Smith, Head of Americas Insights, Cushman & Wakefield Post-Pandemic Commercial Real Estate Report

For an investor, pursuing “flats above shops” is not just about adding square footage; it’s about building a more robust and future-proof asset that aligns with modern lifestyle trends.

Hot Desks vs Private Offices: What Is the Most Profitable Space Mix?

The hybrid work revolution has turned the traditional office market on its head, but it has created a significant opportunity in the flexible workspace sector. For investors looking to convert or operate a coworking space, the critical question is no longer *if* flexible space is in demand, but *what kind* of space is most profitable. The debate often centres on hot desks versus private offices, but a sophisticated strategy looks beyond this simple binary.

The most profitable coworking spaces operate like hotels, offering a tiered product strategy that caters to a diverse range of user needs and price points. This includes: hot desks for freelancers and occasional users; dedicated desks for individuals needing a permanent base; private offices for small teams and startups; and meeting rooms for hire by the hour. A successful space mix is one that balances these offerings to maximize revenue per square foot. However, the true key to profitability lies in a counter-intuitive approach.

For an investor, the lesson is clear: creating a profitable coworking space is not about cramming in as many desks as possible. It’s about curating an experience and a community that people are willing to pay a premium for.

Renewable Energy Funds: A Stable Alternative to Volatile Tech Stocks?

While the title suggests looking at alternative asset classes, the savviest commercial property investors are integrating the principle of sustainability directly into their own assets. In today’s market, a building’s Environmental, Social, and Governance (ESG) credentials are no longer a “nice-to-have”; they are a core driver of its financial stability and long-term value. Rather than viewing renewable energy as a separate fund, think of it as a crucial upgrade that makes your property a more stable, desirable investment.

Corporate tenants, especially larger, publicly-listed companies, are now under immense pressure from their own stakeholders to operate from sustainable premises. A building with a high BREEAM rating, solar panels on the roof, EV charging stations, and efficient waste management is inherently more attractive. It helps the tenant meet their own ESG targets, which can be a key deciding factor in a competitive leasing market. As commercial property insurers have noted, properties with strong ESG credentials reduce vacancy risk and can often command a “green premium” on rent.

Investing in sustainability upgrades is therefore not a cost, but a strategic investment in the future viability of the asset. It directly impacts the bottom line by attracting and retaining high-quality tenants, reducing operating costs through energy efficiency, and future-proofing the property against upcoming environmental regulations. As Nationwide’s Risk Management Team states, “Sustainability upgrades, smart-building integrations and risk-based maintenance planning have become competitive advantages.” In this sense, making your property “green” makes it a more stable asset, achieving the same goal as diversifying into a stable fund.

How to Invest in Coworking Spaces to Capitalize on Hybrid Work Trends?

Capitalizing on the hybrid work trend through coworking spaces is not a one-size-fits-all endeavor. For a property owner, there are distinct investment models, each with a different level of capital requirement, operational control, and potential return. Choosing the right model depends entirely on your appetite for risk and your capacity for hands-on management. The post-COVID economy has seen surging demand for small office and shared workspaces, but the execution is what separates a profitable venture from a costly mistake.

The three primary pathways are direct operation, a partnership model, or a simple lease to an established brand. Direct operation offers the highest potential return but also carries the full operational burden and market risk. A lease to a major brand like IWG or WeWork is the lowest-risk option, providing stable income but capping the upside. The “manchise” model—a hybrid where you partner with a management company—offers a balance of risk and reward. Understanding these models is the first step to a successful investment.

The following table, based on analysis from a recent Cushman & Wakefield report, breaks down the strategic trade-offs for a landlord considering entering the flexible workspace market.

This framework demonstrates that “investing in coworking” is not a single action but a strategic choice. Your decision should be based on a clear-eyed assessment of your resources, expertise, and long-term financial goals.

The post-COVID commercial property landscape is undeniably complex, but it is far from barren. The key takeaway is that the passive landlord is an obsolete archetype. The successful investor of today and tomorrow is an active, strategic operator who understands that their asset is not just brick and mortar, but a service platform. By embracing flexibility through Class E, building partnerships with turnover rents, managing risk through forensic due diligence, and creating value through mixed-use and ESG integration, the opportunities to generate strong, resilient returns are very much alive.