Do plans to convert a north London retail park into warehousing for online distribution herald a new hybrid role for the out-of-town big-box format?
It is a popular, high-performing retail park in a prime north London location, eyed by several retailers and their property agents as a prospective new home.
However, at the start of this year, Ravenside Retail Park in Edmonton was snapped up by industrial property company Prologis which bought it from investment firm M&G for £51.4m.
Prologis promptly announced plans to transform the park, where Next, Argos, Mothercare and Carpetright are tenants, into a logistics hub for its online clients. This was a shock to the market, and is a rare instance of retail space changing to industrial use.
But the acquisition is a sign of the times in the current retail landscape, in which powerful etailers such as Amazon have a competitive edge over their bricks-and-mortar rivals.
M&G is not the only landlord offloading retail parks – property giant Intu sold Sprucefield Retail Park in Northern Ireland to investment trust NewRiver, which is also eyeing logistics uses, for £40m at the end of 2019.
As bricks-and-mortar retail – once the lion’s share by value of the commercial real estate market – becomes less attractive and online sales continue to rise, it raises the question of how fashion brands can use out-of-town locations to support their multichannel operations.
Retail parks first became popular in the 1980s. Cheaper rents than town centres and larger units made them appealing to retailers, while ample free parking space at out-of-town locations created popular shopping destinations for consumers.
In recent years, however, retail parks have not been immune from the wider retail downturn. The British Retail Consortium noted in October that footfall across all retail locations had dropped by 10% in seven years.
Data provider Springboard found that retail park footfall fell by 0.5% year on year in December 2019 – although this was not as deep as the drops on the high street (3.5%) and shopping centres (2.1%).
Retail parks have also been hit by a wave of closures from key fashion retail tenants, such as Mothercare. A PWC report that monitored openings and closures on the top 500 high streets in the first half of 2019 found that the highest proportion of store closures – 262 of a total 2,868 – were fashion retailers. Units in retail parks are the most likely to be closed through a company voluntary arrangement, PWC says, resulting in a significant loss of income for landlords.
One of the key attractions of retail parks for landlords was the higher rents they attracted compared with other uses, such as industrial.
However, the gap in rents is closing. Savills reports that, of the schemes it has been involved with, 17.8% have experienced a decrease in rents. Rents have fallen from an average of £28/sq ft in 2016 to £23/sq ft in 2019. Those reductions make the locations more appealing for other uses.
Robin Woodbridge, head of capital deployment at Prologis, says it was Ravenside’s size and location – rather than the fact it is a retail park – that made it a tempting proposition. The company has
also recently bought a warehouse, a bakery and existing logistics properties, in locations such as Bromley-by-Bow in east London.
Woodbridge says: “Like Ravenside, these assets are located in traditional industrial areas, near good public transport links and close enough to conurbations to facilitate delivery by electric vehicles.
“The UK retail market is changing, as more and more people order goods online. Because of this, our customers, including retail names such as Amazon, Argos and John Lewis, need logistics facilities close to where people live and work, so they can fulfil deliveries of goods ordered online efficiently.”
The property director of one fashion retailer with out-of-town stores predicts that more retail parks may become targets for transformation: “Within the M25, there have been a large number of retail locations converted to residential. As the retail park market is cooling, I can see more retail parks being converted for warehousing and logistics. However, I think this is still some way off.
“In terms of retail contraction, I don’t believe there is a huge difference between ‘out of town’ and the high street. Both are seeing tertiary and secondary locations being repurposed for alternative uses. I don’t believe retail parks can do anything to necessarily improve their offer. If they are prime – ie in the right location, accessible and have a good, wide-ranging offer from a variety of retailers – then they will survive.”
Johnny Rowlands, director of out-of-town retail at Savills, does not think the Ravenside conversion will herald a wave or retail park closures: “This won’t create a massive shift of these retail parks changing to logistics. I can only think of two or three other London locations where a Prologis or other logistics company could afford a strategic site for long-term investment.
“Retail warehousing is going back to its roots. It used to be that you could trade out of town with cheap rents. Over time, those rents have only ever increased. This is the first downturn in retail parks. Retailers now have a chance to get a [rent] decrease.”
Indeed, one UK retailer that has given retail parks a vote of confidence is Next, which has invested in large-format stores such as a new 27,962 sq ft outlet store in Gloucester Retail Park, which opened in March 2019. The upgraded facilities include larger space for concessions and a coffee shop.
In its half-year report in July, Next estimated that it would increase the size of its retail space by 214,000 sq ft over 12 months to January 2020, despite reducing the number of stores from 507 to 499.
Tom Edson, head of retail capital markets at property agency Colliers International, agrees: “There will no doubt be one or two more [purchases] like Prologis that will pop along, but it will not be the norm.
“Despite retail parks having significant bumps, there is space for them in the market, and they are performing better than shopping centres.”
Len Rosso, head of industrial and logistics at Colliers International, says: “We’ve looked at a number of parks across the country [to convert] and in general, they just don’t work outside the south-east and London [because rents are higher on retail parks].
“The land values would need to drop significantly more from a retail perspective to make it an option.”
Prologis admits its plans for Ravenside will take several years to complete, as tenant leases expire or they negotiate exits. However, with clients such as John Lewis on its books, Prologis foresees a time when many retailers will be looking at distribution opportunities as much as retail ones in their property portfolios.
So what can retailers expect from retail parks in the coming decade? One landlord that foresees changes to how retail parks may operate in years to come is NewRiver, which owns 25 parks and 33 shopping centres across the UK and Ireland.
Charles Spooner, head of capital markets at NewRiver, tells Drapers that institutional investors such as M&G, British Land or Intu are reducing their exposure to retail parks and a new type of landlord is moving in: “Parks that are destinations in their own right, which people will seek out and drive a long way to, will be fine, as will small parks people visit once a week. It is the retail parks in the middle that will be under pressure. You may see an element of retail and an element of distribution.
“When it comes to online delivery, if you think of how much it costs to get a van driver to drop off a pair of shoes and then see the customer return them anyway, there’s a cost saving in having distribution [more locally] at retail parks.”
NewRiver is considering adding logistics instead of retail to some parks, notably Sprucefield Retail Park. Home to a Next and Sainsbury’s, the park sits next to 20 acres of undeveloped land.
Spooner says: “Historically, people have talked of adding 1m sq ft of new [retail] space, but we may not do that and add distribution [instead].”
As more retailers and brands adopt multichannel operations, the retail warehouse model is evolving. The retail parks of the future may be places where online and bricks-and-mortar retail work together.
The Drapers Verdict
Like the high street, retail parks have suffered from changing shopping habits, weak consumer confidence, footfall gradually decreasing, tenants closing stores and rents going down. Rent reductions could arguably be seen as long overdue and present an opportunity for retailers.
The addition of more last-mile logistics space may give retailers who can capitalise on it a welcome new tool in the highly competitive world of online or click-and-collect delivery.