Spiralling business rates and tough conditions are leaving towns littered with vacant units. Drapers looks at what’s in store for the property market.
With 22,500 shops standing empty across the UK’s top 650 town centres and warnings from market research firm Local Data Company that 5,000 further stores could close over the next five years, the retail property market looks set for a period of change.
Sky-high rents and business rates, fragmented ownership leading to a lack of control over the local shopping environment, and often little or no availability of free parking are all factors putting high streets on the back foot, while competition from online and out-of-town shopping destinations is luring customers away.
“Both of these competitors offer value and convenience that all but the best high streets struggle to compete with,” says Rob Fay, co-founder of property firm Shackleton Property. “High street stores need to be adding a further dimension to a brand, whether it be communicating a story to the consumer or adding theatre that you simply can’t experience online or in the less exciting arena of out-of-town retail. Competing against etail in the UK, retailers must embrace multichannel or face the grim consequences.”
However, increasing footfall on the UK’s shopping streets shows that consumers still crave the ability to touch and feel products before they buy them. Shop vacancy rates fell in July as footfall in both high streets and out-of-town destinations rose. The national town centre vacancy rate for the month was 11.1%, down from 11.9% in April, according to British Retail Consortium/Springboard data.
This comes as footfall figures improved for the fourth month out of seven since the start of the year. June saw a year-on-year rise of 0.1%, and this increased to 0.8% in July, offering a ray of hope for bricks-and-mortar retailers.
As retailers seek to seduce consumers and win a larger portion of overall spend, many are trimming back their store numbers and focusing their attention on larger flagship stores, with the property market reporting a surge in demand for sizeable units in prime locations.
Miles Dunnett, head of asset management for property developer Grosvenor Liverpool Fund, predicts that as retailers scout out larger stores the trend for smaller retail portfolios will continue. “There is quite a bit of rationalisation that is still coming,” he says. “We are spending a lot of time looking at how we can combine units and vary the size of the units.”
However, these large flagship stores come with a hefty price tag and for those retailers battling depressed sales, the bar might be set too high for them to secure the best locations.
Instead it is the international brands and retailers that are swooping in and claiming the most sought-after prime locations, says Fay.
“In London, overseas retailers benefitting from stronger economies are keen to take a slice of the capital’s big retail spend and they are often at the forefront of the store bids, making it harder for UK names to take prime stores,” he says.
In particular, international retailers and brands have set their sights on flagships in key cities such as London, Manchester and Leeds, with recent examples including US retailer Hollister, which opened stores on London’s Regent Street as well as in Cardiff and Belfast, while Dutch young fashion brand Scotch & Soda has recently opened a flagship store on Carnaby Street and US lingerie chain Victoria’s Secret debuted in the UK with a store in London followed by ones in Manchester, Sheffield and Leeds.
But this strategy of opening fewer, larger stores is not a one-size-fits-all solution, says Fat Face chief executive Anthony Thompson. “We have opened relatively small stores in smaller locations and they have been a real success for us. At the same time we are relocating larger stores too,” he says.
Thompson adds that smaller units are being welcomed by local communities, who are keen to see a thriving high street in their areas.
“I don’t think the high street is dead but the margin for error has been reduced. Opening lots of stores quickly is not the way you need to go about it. You need to be quite thoughtful about the needs of your customer and the
brand,” he says.
Opening a selection of stores rapidly is also bad news for retailers’ bank balances. Rents, although largely stable, are still extremely high in key locations and are being driven up by demand in the super-prime shopping destinations, such as London’s Bond, Oxford and Regent Streets.
Business rates also continue to be a top consideration when searching for new properties or renegotiating leases, and UK retailers face a collective rise of £200m next year if campaigns for a cap fail to win over the Government.
The rising costs of rates are now so steep, and in many cases more than the price of rent, that some independent retail owners have fought to renegotiate costs in order to keep their balance sheets healthy.
Meanwhile, the focus on opening larger units in prime locations is leading to polarisation in the retail property market, with secondary and tertiary shopping destinations feeling the pinch as store portfolios are trimmed back.
One landlord says shopping areas across the country are becoming increasingly disparate. “The dominant shopping centres and city centres have the benefits of size, scale and lots of people who make shopping there an experience,” he explains. “And then there is the local high street, which is easy to get to. But the middle sector will find it very tough.”
As a result he says rents in these areas are dropping as landlords are eager to fill the space and avoid paying empty property rates. This has also led to an influx of smaller brands and retailers launching pop-up shops.
In a further move to reduce high street vacancies the Government has introduced radical proposals to make it easier to convert retail properties into residential.
Planning minister Nick Boles unveiled plans to enable local authorities to name “prime retail frontage” in their districts, allowing the rest of the town centre to be converted into residential property.
Although this has been met with some criticism, with industry figures such as Michael Weedon, deputy chief executive of the British Independent Retailers Association, claiming this will not be enough to revive town centres, Daniel Le Sauvage, owner of young fashion retailer Urban Vintage in Ipswich, says towns could benefit from a more joined-up approach.
He adds that because landlords are getting little rates relief on empty units, many are filling the space with unsuitable retailers. “They are forced to occupy their store with something even if it doesn’t fit with the feel of the high street. There are some really awful stores going into some really prime sites,” he says.
In a move to have a more consolidated approach the Government unveiled new proposals in July that will allow landlords to have a greater role in the revitalisation of high streets.
Local growth minister Mark Prisk announced the plans to allow property owners to formally contribute money to Business Improvement Districts (BIDs) and have a direct say in the regeneration of local trading areas.
This type of strategy could aid beleaguered secondary and tertiary centres as it might create a point of difference for each area.
“One advantage a shopping centre has is single landlord ownership. This is incredibly beneficial versus the high street, which almost always has different ownership building to building,” says Justin Taylor, chief executive
of UK Retail at property business Cushman & Wakefield. He believes either local authority investment or private owners could come together to rejuvenate their local town centres and provide one clear image.
Taylor says the retail market and the high street are constantly changing and evolving and are therefore difficult to predict.
However, with consumer sentiment surveys improving, the outlook for the retail market has certainly brightened and the second half of the year is expected to bring some much-needed sunshine to the sector as retailers attempt to get their offering right in time for Christmas.