This week, finally, non-essential retail shops reopened across England. But for many high streets and shopping malls, it is certainly not business as usual.
I grew up near Watford, not far from what was then known as the Charter Place Shopping Centre. Since that time, the mall has had four different names, four different owners, and a one million square foot plus extension – but, the greatest change is still yet to come. With the closure of all Debenhams and Arcadia stores, and the John Lewis Partnership not re-opening its 100,000 square foot anchor-tenant store in Watford, this means many huge empty shops in the mall.
Up and down the country, similar questions are being asked about what to do with this space. In the last few months alone, Debenhams’ sale to Boohoo has left a 14m square foot hole in the high street, and Asos’ purchase of Arcadia’s central brands will leave 500 stores empty. In 2020, more than 16,000 shops closed, 10,000 of these from well-known chains. What does this mean for the future of our high streets – and how quickly will we see change?
For the large retail landlords, a part of the answer will lie in repurposing shops as leisure destinations. We are already seeing this play out: in South London, Gravity Active Entertainment has signed a lease to transform an 80,000 square foot former Debenhams site into an entertainment mecca, complete with bowling alley, mini-golf course and go-karting circuit. In Kent, LandSec is installing a 700-metre zip wire at its Bluewater shopping centre, and the Market Hall West End project, backed by Bridgepoint Capital, has turned the former BHS Oxford Street site into the UK’s largest food hall.
Other markets are far more advanced in this thinking. Across Asia and Australia, landlords have seen success for years by introducing virtual reality gaming rooms, roller-skating parks and even indoor ski slopes to their malls. Scentre Group – which owns 42 Westfield Shopping Centres in Australia – reports that 42% of its business is made up of services, such as ice rinks, salons and spas. In fact, the group even refers to its malls as ‘living centres’ rather than ‘shopping centres’. In China, Aegean Shopping Mall in Kunming has taken this trend to new extremes by building an equestrian training school on its rooftop, and The Dubai Mall is known for housing one of the world’s largest suspended aquariums. These approaches provide a clear point of differentiation, and above all offer customers something they can’t find online – a truly unique experience, as malls become a destination for leisure, not just retail. It may well be that Covid-19 has simply sped up this inevitable transformation in the UK.
“Retailers may want to consider creating hybrid retail and office spaces, which would not only have the benefit of allowing head office employees to be closer to customers, but also tap into the growing desire to work more flexibly.”
There is also opportunity to turn shopping precincts and city centres into regenerated spaces for people to live and work. From a shopping mall perspective, Westfield London last year submitted plans to convert two-thirds of its anchor stores into co-working offices. Retailers may want to consider creating hybrid retail and office spaces, which would not only have the benefit of allowing head office employees to be closer to customers, but also tap into the growing desire to work more flexibly. Creating hubs with residential housing where people live, work and shop will also open the door to more services such as schooling, childcare, gyms and health and beauty salons.
But how realistic is this transformation? Earlier this week I caught up with a NED at a real estate investment trust with significant retail assets. They pointed out how painful the journey will be for them – and whether they will be the ones ultimately to be successful in repurposing their properties: “We know what the answer is,” they commented, “but the difficulty is getting from A to B. Valuations have plummeted so gearing has rocketed, which in turn makes liquidity, borrowing and investment difficult. To be able to repurpose existing assets effectively, we first need enough liquidity to service existing debt and shareholders, and only then can we invest in repurposing assets. And all that’s assuming we have the skillsets internally to do this, which possibly we don’t. The sector is attracting a lot of interest from PE funds – their plans are no different from ours, but they start without debt, with deep pockets and access to the right skillsets.”
In addition to PE funds or other institutional property investment vehicles, this could also present opportunities for smaller players and individual entrepreneurs. Across retail, hospitality and consumer services, new entrants are seizing the opportunities offered by lower real estate prices, rent-free periods, and offers from landlords to co-invest in store fit-outs. It will certainly be interesting to see whether independent businesses can capitalise on the collapse of established retailers by reimagining what’s possible with those spaces. It is highly likely that a number of these spaces will be taken over by ‘service’ businesses – in the year 2020, according to research by the Local Data Company, there were 800 more barbers, 526 more beauty and 206 more nail salons than there had been 12 months previously.
Additionally, a recent change to planning laws has opened the door to more hospitality businesses setting up shop on the high street. Whereas before there were strict planning restrictions on the oversaturation of hospitality businesses, now restaurants, cafes and bars have more freedom to take over spaces formerly designated as retail.
“In individual towns and cities, the last year has breathed new life into residential areas, with local high streets benefitting from the shift to remote working.”
Covid-19 has certainly fast-tracked the trend towards localisation, on both a city and regional level. In individual towns and cities, the last year has breathed new life into residential areas, with local high streets benefitting from the shift to remote working. Big-box retail companies such as B&Q, Dobbies and Homebase are moving into local high streets with more compact formats and John Lewis is trialing opening smaller, more flexible outlets in local neighbourhoods. This approach may well pay off: in a recent survey for Retail Week, 25% of shoppers said they planned to spend more in local high streets this year.
This trend towards localisation is likely to be supported by a number of corporate moves, with many companies opting to move away from metropolitan centres. Santander, for example, recently announced plans to close 111 of its retail banking branches and move its headquarters out of central London to Milton Keynes. Against this backdrop, it is highly likely that retail businesses will look to re-orient their strategies further towards smaller towns – suddenly, high streets that were considered undesirable, may well have significant more local traffic.
Over the last decade, most of the innovation in retail has been through the digital channel. Over the next 5 years, we predict that some of the most exciting innovation – innovation that really differentiates one retailer from another – may well be in the approach to property. Property directors of the future, and their counterparts in retail property, will need to form a new, agile, customer-centric mindset. To drive footfall and create relevance, property owners, retailers and hospitality businesses will need to work in partnership like never before: sharing data on customers, creating experiences that are truly destinations and responding to the changed consumer requirements of localisation. There is a new normal in retail property – and we look forward to seeing which leaders emerge to shape this future.