Repurposing Shopping Centres and Department Stores
11 February 2021

Retail, but not as we know it

The scale of the challenge facing retail centres was starkly outlined by James Child of EGI in his scene-setting presentation at the last of three SPR webinars on repurposing retail real estate.  The UK is now reckoned to have 20% too much retail space, with 27m sq ft of space falling vacant between the start of 2018 and Q3 2020.  This has now gone even further with the demise of Debenhams and Arcadia, among others.  Over the last two years there has also been a net loss of over 8,000 trading stores.  Thinking longer-term, retail rents have fallen by 16% in real terms over the last ten years, while average lease lengths have declined by 28% on average.

Retail centres may be in big trouble, but this should be seen as an opportunity rather than a threat, argued Tom Whittington of Savills.  And even if the pandemic has hastened the repurposing of retail, especially via the growth of home-working, Covid-19 did not start these trends.  In order to have a sustainable future, he proposed, a new hybrid model of retail centre needs to emerge including other uses such as co-working, maker spaces and living – the latter not just for the young, but across the generations.

Matthew Soffair from Legal & General Investment Management suggested that many shopping centres had become irrelevant to their locality, often feeling bare and characterless.  There is clearly too much retailing in the UK, which means that diversification is now needed in order to bring the right mix of content to each location.  This implies a more active role for those investing in town centres, most of whom are relatively passive at present, and includes developing the right operational framework of leasing arrangements, with a closer relationship to turnover.

With so much retailing now happening online, the challenge is to make the real-life experience more enticing, suggested Patrick Abrams of architects Applied Studios. Part of this could be to build in alternative uses into specific types of unit, for example working areas into restaurants, or to allow for community-oriented activities in centres’ common areas.  

Each of the speakers cited recent repurposing use cases. Whittington noted the STOK project in Stockport, which has repurposed a former M&S premises into workspaces, responding to the lack of office space in the vicinity.  Soffair referred to Kingland Crescent in Poole, a previously uninspiring shopping parade that has been transformed by bringing in new local businesses with strong eco credentials and a mix of uses ranging from restaurants to a wet fish shop.   

The panel discussion moderated by Joanna Turner from Canada Life Asset Management highlighted the importance of investors taking a financially flexible approach in order to make large-scale repurposing possible. Child proposed that there would need to be a ‘rebalancing’ to reflect how retailers are no longer prepared to pay the rents required to support current levels of valuations. Whittington suggested that although rents would undoubtedly need to fall to attract a wider range of uses, some of these – say in coworking – could allow for much longer lease terms.

The possibilities of creating social value were explored in response to a question from Matthew Hopkinson, Didobi on the example of a shopping centre that had been demolished and replaced by a park.  Creating amenity value in this way could help boost investment value for the retail assets that remained and also making adjoining residential property more attractive, suggested the panel.  The trick is to work out how to finance such a drastic measure – this would likely mean local authority involvement.

Tim Horsey