What just happened?
Intu properties, the UKs largest shopping centre owners have entered into administration[1]
What does this mean?
As the owners of the UK’s largest portfolio of shopping centres, Intu properties are a giant on the commercial real estate scene in the UK. Despite this, they are not immune to the current shift taking place in retail. With in-store shopping dwindling in favour of online shopping, there are predictions that internet sales will account for 53% of retail sales in 10 years’ time.[2]
As such, whilst the pandemic can definitely be considered a catalyst for the shopping centre giants’ breakdown it cannot be considered the cause.[3] They were struggling long before the pandemic, for example, in 2019, Intu’s revenue fell by almost 40% and it recorded a pre-tax loss of £2 billion.[4]
Due to the uncertainty that the pandemic has caused and the inevitable changes to retail that this will bring, there are not many property groups looking to take on a large portfolio of shopping centres.[5] Therefore, if the company’s administration results in an asset sale, this could result in the properties selling for cheap prices. As Intu properties hold the UK’s largest shopping centre portfolio this could cause a ripple effect, devaluing shopping centres across the UK. The failure of physical retail could, therefore, result in a large drop in the commercial retail value for shopping centres in the UK.
How does it impact the legal sector?
The downfall of the property giant shows that the current model of shopping centres just does not work for current consumer habits. Whilst retail shopping fell from 29% of high street businesses to 25% between 2012 and 2017 accommodation and food services rose by a fifth.[6] This may mean that property groups and developers need to look at adapting the purpose of their retail premises to meet the evolution of UK high streets into community spaces.[7] If such businesses do indeed start to change and adapt their businesses, this creates work for firms as they advise in the restructuring of the business model and advise of the rules, regulations and processes involved in changing the purpose of their client’s premises and leases.
Further, in times of economic hardship where administration, mergers and acquisitions become more commonplace, law firms will thrive. The volume of work that accompanies these processes continues to benefit the handling firms through the provision of an intense workload. Intu’s administration exhibits this perfectly, as, Linklaters who have a long-standing relationship with Intu,[8] will advise KPMG who are the appointed administrators. However, various other firms have also been lined up to assist in the administration of the Intu properties including, Allen & Overy and Freshfields.[9] The firms may advise on properties and work with administrators on potential plans of action to save the company, such as trying to negotiate with the business creditors If there are no viable salvage options, to orchestrate the sale of the business. This shows the abundance of work that immediate administration will create as well as the work involved in finalising any deals post-administration. This ensures that even in times of economic hardship, firms retain a healthy workload.
Ultimately, the administration of Intu properties has shown that if the current trend towards online over physical retail continues, firms could see a shift in their client’s business focus and an increase in administration and insolvency work for many high street retailers and shopping centres.
Written by Gabriella Cinotti
Assessing Firms:
#Linklaters #Allen&Overy #CliffordChance #IrwinMitchell #Ashurst #Hogan LovellsInternational #HerbertSmithFreehills #MayerBrownInternational #SlaughterandMay #JonesDay #BurgesSalmon #Mills&Reeve #SquirePattonBoggs #IrwinMitchell #Hamlins #HowardKennedy #BlakeMorgan #Simmons&Simmons #Clyde&Co #EvershedSutherlands #Freshfields
References:
[1] Zoe Wood, Shopping centre owner Intu collapses into administration (The Guardian, June 26, 2020)
[2] Sarah Butler, Half of UK retail sales will be online within 10 years, report predicts (The Guardian, July 9th, 2019)
[3] George Hammond, UK shopping centre owner Intu files for administration (Financial Times, June 26th 2020)
[4] Sahar Nazir, Intu: What went wrong? (Retail Gazette, July 1st 2020)
[5] George Hammond, UK shopping centre owner Intu files for administration (Financial Times, June 26th 2020)
[6] Peter Moore, Who is shopping for shops and commercial real estate in the UK? (Macdonald & Company, June 20th 2019)
[7] High Streets in Great Britain, Office for National Statistics (Office for National Statistics, June 6th 2019)
[8] Linklaters LLP > The Legal 500 Rankings, (Legal500.com)
[9] Varsha Patel and Simon Lock, Allen and Overy, Freshfields and Linklaters take on Intu administration (Law.Com international, June 26th 2020)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.