Words: David Thame
Shops aren’t what they used to be. The e-commerce revolution has turned yesterday’s shrine-to-consumption to today’s boarded-up voids. The result is a truly staggering amount of defunct or soon-to-be-defunct retail floor space.
According to research from Savills, around 142 million sq ft of UK retail floor space is redundant. By the end of the decade the figure will be over 300 million. On top of this, there’s another 1.1 billion sq ft of UK retail floor space in basements, or on first floors, or tucked around corners, that has a strictly limited future.
Yes, it means dead malls and shuttered high streets, but it also heralds a truly enormous recycling of UK town centre property.
The big hope is that recycling retail property can provide a new supply of workspace, housing and educational space that could transform many neighbourhoods. But big hopes come with big difficulties.
Top of the list is the conceptual problem faced by many retail landlords. Many have yet to adjust either their minds or their accounting valuations to the new reality that their shops and shopping centres have no future in retail.
Alex Isaac, consultant at residential management company, Apo, says: ‘There is a big psychological hurdle for landlords and investors to overcome.
‘Historically they let these spaces to blue chip retail tenants on long leases of 25 years or more, and these tenants paid the rent reliably. Today they have to get their head around the idea that this kind of tenant is vanishing, and they need to rethink how they approach their assets.’
It’s not just psychology that causes problems; maths can prove a formidable trip-hazard, even if the landlord’s head is in the right place. The dilemma turns on one of the property industry’s most enduring and debatable headaches: how to value a commercial property.
Steve Henderson is Leeds-based director of retail for Savills. He explains that retail landlords are often flying blind, having no clear idea what their retail properties are worth in the uncertain world of 2021, no firm idea how much they might have to invest to repurpose them, and absolutely no idea how to value the end result in four or five years’ time. With so many unknowns, and developers reluctant to spend whilst their rental income flows are brittle, it’s little wonder many landlords prefer to play wait-and-see.