STRUGGLING SHOPPING CENTRES IN THE SPOTLIGHT
Posted by The Times on 5th Aug 2019
When a shopping centre in Scotland was put up for a sale this year with a price tag of £1 it was accompanied by alarm bells. The starting price attached to The Postings at auction said everything you needed to know about the retail crisis in Britain’s towns and cities.
Once a hub for Kirkcaldy, the site in Fife is a shadow of its former self. The Postings was opened in 1981 by Isla St Clair, The Generation Game presenter, and cost more than £4 million to build. Almost 40 years later, 18 of its 21 shop units are vacant.
It is fair to say, therefore, that there is great interest in the retail and property industries as to what Tahir Ali does next. The 43-year-old from West Yorkshire boasts 20 years in the property business and bought The Postings for £310,000 in February, despite never owning a shopping centre before.
“I can see why a lot of shopping centres up and down the country are struggling and there has been a huge shift to online and out-of-town retail parks, but the strategy we are employing at the moment is gathering pace,” he said. “You’ve got to give people a reason to go into the town centre, where there isn’t free parking and you’ve got all the headache of the traffic.”
To that end, Mr Ali intends to invest more than £1 million revamping the centre with a fresh lick of paint and more leisure facilities. He is in talks with an independent cinema operator about taking a unit that was previously occupied by Tesco and is trying to attract retailers by offering incentives such as rent-free periods. “I am in for a challenge, but I tend to buy properties that I can add value to and I think it still has a lot of potential.”
Landlords of other shopping centres will be hoping that Mr Ali is right. He might even give them a blueprint for survival that some critics believe doesn’t exist.
The Postings is among about 600 shopping centres in Britain that are fighting against obsolescence. Shopping centres sprouted up across the UK in the 1960s, intended as a response to American suburban malls and as new focal points for communities. Only five years ago, such centres were trading for some of the highest values in the property sector as investors were lured in by the British tradition of landlord-friendly rental agreements with fixed annual increases.
It’s a different landscape now. Landlords are suffering from sharp falls in rental income and valuations as traditional retailers rush to close stores or cut rents. Last week, Intu Properties, which owns the Lakeside shopping centre in Essex and the Trafford Centre in Manchester, warned that it may need to raise equity after its net rental income fell 18 per cent to £205.2 million in the first half of 2019 and the value of its property fell by 9.6 per cent, pushing it to a pre-tax loss of £840 million . Intu’s results spooked investors, whose rush for the exit wiped almost £1 billion off the stock market value of Britain’s biggest retail landlords.
However, there may be worse to come. According to Mark Robinson, 48, co-founder of Ellandi, which manages more than 20 shopping centres, the industry is at the start of a “de-malling”, adding: “It means taking capacity out of the market by demolishing excess malls. We are working on a project at the moment to demolish one in a town centre and to reinvigorate the one that’s left.” He believes that there remains a future for shopping centres, but that they need to become “more interesting and engaging”. Ellandi, therefore, is introducing alternative uses to its centres. At The Eastgate in Gloucester, it has worked with the local enterprise partnership to install a “digital innovation hub” to educate retail businesses about how to thrive in an era of digital innovation.
“Is there a need for most town centres to be anchored with something that might be retail? Of course,” Mr Robinson said. “Do we need as much of it? Absolutely not.”
Allan Lockhart, 54, chief executive of New River Reit, which owns more than 30 shopping centres, agrees that there is an “oversupply” of retail space in Britain, but notes that convenience and value retailers are performing well. In addition, online retailers increasingly are encouraging customers to collect purchases in-store, driving up shopper visits to traditional shops. New River is introducing alternative uses to its centres, such as budget hotels, flats, leisure operators and medical centres.
Another challenge for shopping centre owners will be attracting the cash they need to invest. Amy Aznar, head of debt and special situations at Lasalle Investment Management, said that most lenders were “obviously cautious, given the headwinds in the retail space.” However, she added: “Certain retail assets, such as convenience or experience-led, should sustain the structural shift that the sector is undergoing and such assets remain attractive for lending opportunities.”
Mr Ali, Intu, Ellandi, New River and the rest of the industry are not alone in trying to stem the tide. Local authorities have become big owners of shopping centres in recent years as they take direct control of trying to reinvigorate their town centres.
Shropshire council bought three shopping centres in Shrewsbury for £51 million in early 2018. Mark Barrow, director of place at the council, said that it had bought the centres to support the area’s long-term future as a “culturally vibrant and successful sub-regional retailing centre”. He added: “We have a clear and strong focus on developing the quality of experience required to reinforce Shrewsbury’s role as the county town and position as a great place to visit, stay and enjoy a great day out, which is not an aim you can leave to market forces alone.”
However, in the short time the council has owned the centres their value has already fallen to £40 million, according to its latest accounts. Revitalising Britain’s shopping centres threatens to be an expensive challenge.