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The big beasts of retail property face a wipe-out. In response, they are rapidly evolving into residential and hotel developers. Hammerson are one of the first to turn towards a non-retail development pipeline.
Words: David Thame
We live in evolutionary times – and this is not good news for dinosaurs.
In the property world, the shopping centre landlords were always the biggest beasts. As predatory as a tyrannosaurus and as cumbersome as a 30-ton brontosaurus, their bellowing across the swamps of real estate drowned out the noise of the smaller, rodent-like office and leisure developers.
Today, the big beasts are in trouble. Intu is a shadow of its former self after its shopping centre assets like the Trafford Centre and Lakeside were forced into administration, and Hammerson, owner of Birmingham’s Bullring, the Bicester outlet village and many other regional centres, has done well to avoid a similar fate.
Even so, if you had bought Hammerson shares five years ago they would now be down in value by 99%, thanks to long-term trends and the hammer-blow of coronavirus, which meant the landlord collected only half the rent due on the January 2021 quarter day. The turmoil cost Hammerson its Financial Director.
This sounds grim – and it is. But it is not nearly as grim as it might be because Hammerson is reinventing itself as a build-to-rent residential, leisure and workspace developer. It is off-loading its portfolio of out-of-town retail to help pay for the change, and repurposing what had been retail sites with mixed development in mind. Hammerson, in short, will be a substantial source of work for the interiors business for years to come.
Schemes in Leicester, Leeds and Birmingham show the direction of travel.
Leicester is perhaps the biggest departure from the old retail-led approach. After toying with BTR development in Dublin, Hammerson has taken the plunge in Leicester. However, their arrangement with local partner, Packaged Living, limits their exposure to what is a new and complex sector.
The former Debenhams store at Hammerson’s 1.2 million sq ft Highcross shopping centre will be redeveloped as 300 BTR apartments. ‘There will also be coworking/flexible workspace and leisure amenities in the scheme, designed by CallisonRTKL.
Not only does BTR make good, profitable use of a large empty department store, it also provides 24-hour a day animation (and customers) for the Highcross area.
Hammerson Managing Director, Mark Bourgeois, explains: ‘This is an example of the steps we are taking to manage the structural shift in retail whilst maintaining the vibrancy at our flagship destinations through a diversified offer and mix of uses. It will meet demand for rented accommodation in Leicester city centre and ensure Highcross remains an exciting destination for visitors, whilst supporting local businesses and boosting footfall.’
Hammerson will wade deeper into the sector with a 500-unit BTR at London’s Bishopsgate Goodsyard, and be up to its waist by the time development begins at the Martineau Galleries in Birmingham, where 1,300 units are planned.
The key to the rethink is the so-called City Quarters concept. In essence, this takes the plots occupied by shopping centres (or potential shopping centres) and repositions them as mixed developments, with an anchor in the residential sector.
Birmingham’s 7.5 acre Martineau Galleries site was expected to see a 2.9m sq ft retail-led scheme adding a massive eastern extension to Birmingham’s retail core. Such a plan has been obviously bonkers for several years and, since 2018, Hammerson have been pondering the right mix for what is a prominent site with the benefit of a short-walk to the new HS2 station at Curzon Street.
Hammerson now have permission for a scheme that envisages 1.4m sq ft of workspace and 1,300 homes. The retail content is minimal. There will also be a hotel. All that is needed now is a date for work on site to begin. Given the economic circumstances, that may not be imminent.
But if construction work is pushed back, this will give Hammerson time to work up more City Quarter plans. Some, perhaps many, are likely to be lighter-touch than Birmingham’s, with an emphasis on refashioning existing shopping centres.
This is the approach adopted in Leeds, where Hammerson owns and manages the Victoria Leeds shopping complex. The latest City Quarter twist to the Victoria complex is to add a 205-bed hotel as a way to broaden the scheme’s appeal.
Hammerson is currently in discussions with an international hotel brand looking to bring a new boutique hotel to Leeds for visitors and professional travellers.
Hammerson also owns a 10-acre site just north of Victoria Leeds, which will be brought forward for development in due course, creating a new mixed-use City Quarters neighbourhood, perhaps of the Martineau Galleries type. But, once again, don’t hold your breath. Nobody, least of all a developer with a deeply damaged rental income stream, is going to risk expensive development anytime soon.
Hammerson are not abandoning retail. They are simply trying to escape from imprisonment in a sector that no longer needs their skills in quite the way it did. Their progress down the workspace, residential and leisure paths will depend on, and be yoked to, their approach to retail property. And this, in turn, will depend on whether the huge capital outlay this plan demands will be forthcoming from shareholders, banks or elsewhere.
So much is uncertain. But what one can say with certainty is that one of the dinosaurs of retail is determined to become a major presence in the wider property market.
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