Unloved shopping centres make way for homes in Landlords' plans
Posted by Ellandi on 5th Nov 2018
Despite having a Sega Park video games arcade, Southampton’s 1980s Bargate shopping centre close to the city’s medieval gateway struggled to win over shoppers. Two other retail venues in the coastal city won the battle for footfall, and in 2013 the Bargate centre was boarded up.
But now the bulldozers have rolled in. Its current owner, Tellon Capital, plans a £100m redevelopment to create an upmarket street, 152 flats, accommodation for 451 students, and about half the previous amount of retail space.
“It was a dead-end centre in every sense of the word,” says James Burchell, a partner at Tellon Capital. “We are creating a thoroughfare with a new sense of place — not just a shopping centre."
As retail failures mount nationwide amid the boom in online shopping and rising business rates, a growing number of landlords is following the Bargate’s owner in seeking to repurpose properties as they accept that the UK simply has too many shops.
On the Old Kent Road in south-east London, Aviva Investors is seeking permission to knock down Cantium retail park and replace it with about 1,200 new homes. Elsewhere in Southampton, part of the Marlands shopping centre is becoming office space for start-ups.
The listed retail landlord Intu, currently subject to a take-private bid led by the UK billionaire John Whittaker, said last week it had identified space for 5,000 new homes on its land, a departure for the company at such a scale.
Mark Garmon-Jones, who heads the shopping centre and high street investment team at the property agents Savills, said he was getting calls “every other day” from landlords looking at repurposing land and properties currently used for retail. Others are selling shopping centres but marketing them as redevelopment sites.
Ministers look set to encourage the trend. In last Monday’s Budget, the chancellor, Philip Hammond, said he would consult on making it easier to “establish new mixed-use business models” in place of empty stores through permitted development rights, which bypass the full planning process.
He also announced a £675m fund to help high streets adapt, including redevelopment to “boost retail and bring properties back into use as homes, offices and cultural venues”.
According to the consultancy CACI, which analysed demand in different areas, 49 per cent of retail centres in England and Wales have too much space. In all, there is 17 per cent too much retail space in the UK, it said in data produced for Ellandi. The surplus space is spread around a large number of “small and mid-sized [shopping] centres that don’t really stand for anything, [such as] places which sit in the shadow of a larger centre”, said Alex McCulloch, director at CACI.
Mark Robinson, who next month takes over as president of Revo, said housebuilders, serviced-office providers and other property companies attended the group’s conference in September to discuss repurposing. “We’ve been reaching out to them and they are keen to talk to us,” he said.
A drop in retail property values has helped to catalyse this shift. “For all my working life retail has been the most valuable use [of land] on a per square foot basis, but that is no longer always the case.”
Redevelopment is a complex challenge, not least because of the years it can take to secure planning permission for a change of use. Tellon Capital praised Southampton council’s co-operation on the Bargate site, but even that relatively smooth process required 20 months of consultation.
Developers are also eyeing the conversion of large, out-of-town “retail warehouse” stores into distribution sites for online retailers. M7, a real estate asset manager known for industrial property, has set up a fund to buy retail warehouses that so far has acquired £70m of regional assets.
“The thinking behind it is very simple: [logistics] warehousing is now the most popular asset class in the world, while retail warehousing is about as popular as the Ebola virus,” said Richard Croft, chief executive of M7.
He said he would operate the sites as retail but would repurpose them if retail demand fell. “We are able to buy these things at very attractive yields [because of] the perception that the retail market is going to collapse,” he said.
Mr Burchell said that not all struggling retail areas were ripe for conversion. “Would we be doing this if it was Huddersfield or Halifax? Probably not,” he said of Tellon Capital’s development. “To find a site of this size and location in a city of the nature of Southampton, a top 30 city, doesn’t come up very often.”
James Gulliford, joint head of UK investment at Savills, agreed that building homes in place of shops only usually made financial sense in the UK’s most popular cities.
However, struggling shopping centres — or parts of them — were also being converted into hotels, offices, student accommodation and assisted-living complexes, he said.
Mr Robinson said the shift could mark an end to identikit town centres and retail areas populated by the same big chains. “This structural change is leading to the demise of clone towns, and nobody should mourn that.”
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