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ECSP letter to the European Commission on the Covid-19 crisis

To the attention of:

Mrs. Ursula von der Leyen, President of the European Commission
Mr. Thierry Breton, Commissioner for Internal Market
Mr. Paolo Gentiloni, Commissioner for Economy
Sent by e-mail

Dear Madam President,
Dear Commissioners,

The Covid-19 outbreak has unprecedented consequences for the life of European citizens, the economy and society as a whole. We, the European Council of Shopping Places (ECSP)1, representing companies and organisations that design, create, fund, develop, build and maintain retail destinations in Europe, welcome the macro-economic and political measures the EU institutions and the Member States have already taken to protect EU citizens and to address the most pressing challenges posed by this pandemic. Our sector wants to express its deepest respect for all those affected by this crisis and our continued support for the many health care workers across Europe that are fighting this severe public health crisis on a daily basis.

The closure of hundreds of thousands of shops, stores, bars, restaurants, and places of commerce across the EU is unprecedented and is hitting our sector extremely hard. For a sector that employs more than 6.3 million people in the EU including a significant number of young and low-skilled workers, these measures, while obviously necessary to protect public health, have put a great number of our people under huge strain and a lot of them are struggling to protect their livelihoods and to support their families. Our sector represents almost 160 million m² of floorspace covering a wide variety of retail and commercial formats in all EU countries, approximately the size of the city of Brussels, and is a core part of the socio-economic fabric of almost every community across Europe. We are therefore acutely aware of the very dire impact the crisis is having on people everywhere in the EU and beyond. Therefore, we stand ready to offer our support to the EU institutions, Member States and local communities to deal with this terrible tragedy in whatever meaningful way we possibly can.

The crisis has also resulted in dramatic reductions in footfall and turnover that will very likely translate in extremely severe situations for retailers, including bankruptcies and job losses. For our sector, it will subsequently result in a dramatic drop in investment needed to adapt to the changing retail landscape, as well as decreasing valuations, severe liquidity issues, falling share prices for listed companies (many lost between 50 and 75% or even more in March alone) and, inevitably, further redundancies and bankruptcies. All of this is happening at a moment in time when the retail industry is already facing massive challenges, notably due to the continuous surge of e-commerce and changing consumer habits. Our important social contribution as a marketplace, as a meeting point that furthers (local) entrepreneurship and contributes to the vitality of town centres across Europe will therefore come under strong pressure. Our economic and fiscal contribution – we generate a total annual turnover of 750 billion euros and contribute hundreds of billions of VAT and other taxes every year – will likely also be severely impacted.

Our industry is characterized by the great diversity of its actors, i.e. from major landlords to small property owners and from local family-owned shops to global retailers. Each situation is obviously different but, ultimately, this crisis puts everyone at risk and owners and tenants share the same concern about the future of retail when almost all shops are closed in Europe.

Bearing this in mind, we, the representatives of the retail real estate industry in Europe, are aware of the burden of rental costs for retail companies and are willing to propose amenable solutions wherever possible. In several Member States, such as for example France and The Netherlands, a number of initiatives have already been deployed by our sector, sometimes in close cooperation with retail organisations, to this end. A variety of solutions exist and can be adapted to local contexts.

However, it is very clear that it cannot be expected by the authorities nor will it be financially possible for our industry to take on the entire burden and cost that this crisis will have for our tenants. This is all the more true as retail landlords will have to face decreasing valuations of their assets and subsequent growing loan-to-value ratios.
At a time when retail, – confronted with new paradigms – , has already invested massively to convert pure retail spaces into ‘mixed-use centres’ adding many other activities (entertainment, culture, health services, social activities, sporting facilities and public services), to increasingly become genuine ‘hubs of socialisation’ going forward, such an approach would inevitably lead to major, long-lasting value destruction for our industry. This will not only have highly detrimental effects for the whole sector, our tenants and the communities we operate in, but presents a real risk of a negative domino effect such as experienced in the global financial crisis in 2007/08, if the stress in our sector is passed on to the banking sector. A collapse of the retail property sector would have an immediate and dire impact on the balance sheets of European (institutional) investors that have invested hundreds of billions in retail real estate.

We strongly commend the European Commission and other EU institutions for having already proposed measures that could provide relief to many companies, in particular the temporary framework for state aid measures that was announced on 19 March, the EU’s decision to rapidly adopt the Corona Response Investment Initiative deploying almost EUR 40bn to combat the immediate impact of the crisis as well as the decision to trigger the general escape clause under the Stability and Growth Pact providing Member States with additional budgetary flexibility to adopt necessary measures. The proposal for a EU-wide unemployment reinsurance scheme is another important measure that could provide very helpful support to many of our citizens and companies.

Nevertheless, in light of the magnitude of the current crisis and the associated uncertainty, we are deeply concerned that these measures might not be sufficient to prevent a very severe downturn in the retail property sector. Therefore we ask that:

  1. The Commission and the other EU institutions also take into consideration the retail property industry in any financial or other supporting measures that will be adopted to help the economy get through this difficult period, such as for example the EIB financing package for SMEs and midcaps, bearing in mind the significant spill-over risk for the EU’s financial sector.
  2. A specific EU Retail Relief Fund to financially support the entire retail industry is set up as part of the EU recovery action plan (landlords and retailers) given the number of jobs and the amount of future investments at risk in the current crisis.
  3. Finally, we would like to draw the Commission’s attention to the fact that laws pertaining to commercial rent are being amended in a growing number of Member States, in particular in regard of the conditions under which rental payments in the retail sector can be cancelled/postponed during a period of crisis and we are concerned that some of these measures may constitute an infringement to the fundamental freedoms of movement and right to property guaranteed by the Treaty on the Functioning of the European Union (“TFEU”)and by the EU Charter of Fundamental Rights.

The focus of the EU must currently be clearly on combatting the pandemic. However, once the worst part of the pandemic is behind us, our sector, as partners to hundreds of European municipalities and local governments, could play a helpful role to progressively bring Europe’s streets and communities back to normality and to make them vibrant again. This is something that will be much needed after prolonged periods of lockdown in many Member States. Therefore, we want to reiterate that we stand ready to work together with the Commission and any other EU Institution or national authority to contribute in the best possible and most efficient way to the Roadmap and Action Plan for recovery that the EU Council has asked the EU institutions to start working on.
Yours sincerely,

Peter Wilhelm
President, ECSP

Joost Koomen
Secretary General, ECSP