‘Retail’ is a word that has become almost as common place as ‘Brexit’ in the news recently.
While Boris Johnson announced plans to increase the Government’s Future High Streets Fund to £1bn to help save Britain’s struggling high streets, multiple household names such as Debenhams, Poundworld, Maplin and Toys R Us have entered administration. Other retailers such as Carpetright and Homebase are seeking legal agreements with their landlords to shut stores.
According to PWC a net 1,234 chain stores closed in the first half of 2019, an increase of 10% on 2018 and a significant increase from the 222 that reportedly closed in first half of 2017. In what some observers would suggest is ‘the most brutal retrenchment the retail industry has seen’, it is understandable to ask the question, who would invest in retail property right now?
Several of the biggest property owners in the UK have found the value of their prized retail assets dwindling, with experienced companies such as Intu, who own some of the top shopping centres in the UK reporting significant write downs in the last year. The cause appears clear, a combination of an increase in online shopping and taxes. It is expected that e-commerce sales will grow by 10.9% this year, meaning that an estimated 22.3% of total UK retail sales is now carried out online with this expected to continue to grow in coming years. And while Amazon reportedly pay £63.4m in business rates, this equates to approximately £40m less than Next, despite having more than double the UK sales. It is no surprise that retailers are struggling, leading to confidence, in what were once considered top covenants, diminishing.
However, it strikes me that with what appears to be an almost blanket devaluation of retail properties by certain segments of the market, opportunities are inevitably created. We are an island; by this virtue there is a fundamental shortage of land and an even greater shortage located within town centre locations. With ease of access to transport nodes and local amenities, combined with high-density planning policies, surely there are solutions. With technology having an ever-increasing impact on how we live our lives, it is a fundamental reality that the way people, businesses, retailers, landlords and tenants operate is changing. There appears to be a clear over supply of retail space, however there is by no means an over supply of space. The question, which is more relevant now than ever, is use-class. I recently sold an income producing commercial asset where we had interest from residential developers, office developers, co-living operators, build to rent developers, hoteliers, storage operators, car park operators and supermarkets, all for the same building. It’s no surprise that it was a mixed use developer that purchased the asset.
The high street ‘crisis’ is matched by the housing ‘crisis’ yet one crisis suffers from over supply, while the other is due to under supply. With sites for residential development becoming increasingly scarce, developers have been forced to adapt and focus their efforts on alternative opportunities and look longer term for their opportunities.
The office to residential permitted development wave has stimulated the re-development of under-utilised office buildings, in some cases successfully regenerating the location, while in others arguably solidifying the future of an existing eyesore through a questionable conversion.
I am by no means suggesting that we should be using permitted development rights to convert existing retail properties to provide poor quality residential. However, town centres, shopping centres and department stores traditionally all benefit from good-quality infrastructure, transport and amenity space. These locations have the ingredients to be transformed into thriving mixed use communities that provide much needed housing in locations where residents can be better serviced by the retail and services required in the modern world. Commercial elements could have an increased focus on convenience and amenity and provide valuable community enhancing space including leisure, fitness and medical facilities to complement our increasingly active community led lifestyles.
While this concept is not new, it is a challenge, local planning policy, government taxation and the nature of retail property’s fragmented ownership outside of retail parks and shopping centres are some of the biggest challenges. However local authorities are slowly learning the lessons of permitted development and restrictive employment policies and hopefully will therefore be more pragmatic when approached about large-scale re-development within their town centres. In every difficulty lies opportunity, however, it does raise the question, is town centre retail a form of income producing strategic land for an active and engaged long term investor / developer looking at a large scale mixed use re-development play in the future?
Notes to editor
Anthony joined Allsop in 2010 and gained experience in the Residential Valuations, Commercial Auctions and Lease Consultancy teams before joining the Residential Development and Investment team in 2012 to focus on Residential Development Agency. Prior to joining Allsop he worked for Cluttons in their regional offices in Sussex.
Anthony has acted for a range of individuals, property companies, receivers and funds advising on the disposal of their assets and has also advised on the acquisition of a number of sites on behalf of housebuilders, housing associations and investors.