The Changing Face of Retail: the space race is over!

25
March 2015

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In recent years we have had a plethora of reports commentating on the so-called death of the High Street: The Portas Review et al. Candidly, the bottom line is this: the past 20 years growth has left Britain with an oversupply of retail space.

The Changing Face of Retail: the space race is over!

by Robert Chapman (Chartered Surveyor & Director, Robert Chapman & Company: Commercial Property & Regeneration Consultancy)
 


In recent years we have had a plethora of reports commentating on the so-called death of the High Street: The Portas Review……… et al. Candidly, the bottom line is this: the past 20 years growth has left Britain with an oversupply of retail space - it’s as simple as that.


That’s why, according to the Centre for Retail Research (CRR), nearly 300 retailing firms (incl. big brands such as Comet, Barratt, Blockbuster etc) have gone under since 2001, with around 25,000 stores affected. Centre for Retail Research (2013) forecasts that by 2018 the total store number will fall by 22% to just 220,000 caused by exponential drop-off in footfall over the last few years and subsequent administrations. Therefore, for retailers, the space race is over! Because of the multi-channel landscape, ‘clicks’ are just as important, if not more important, than ‘bricks’.
With a particular emphasis on property, what are the national trends affecting the vitality of retail and therefore place?

 

 

  • Retail sales: average UK retail sales in April 2014 increased by 6.2% year on year (ONS). In November 2014, the quantity bought increased by 6.4% compared with November 2013 (ONS). This was the highest year-on-year increase since May 2004 when it grew by 6.9%.

  • Technology / Online E-commerce: More than 50% of retailers intend to spend more on technology in 2015 than last year (Retail Technology) and current, average e-commerce penetration globally at circa 20% is forecast to grow to an average penetration growth of around 30% a year over the next decade. In 2012, 32% of the world's population had Internet access but this is expected to jump to 48% by 2017. Indeed, the Welsh Government / BT ‘broadband rollout’ joint venture will improve connectivity throughout Wales providing significantly enhanced connectivity. According to Verdict Retail, while online spending has grown by around 75% over the last 4 years+, sales from brick-and-mortar shops have been flat. IMRG (UK’s industry association for online retail) state that online sales grew by 14% to £104bn in 2014, and will grow by 12% to £116bn in 2015. As fewer shop in stores, online retail is set to account for 21.5% of total retail sales by 2018 from 12.7% today, the highest online retail share in the world. With such a high number of transactions carried out online, from a property perspective retailers with a strong web offering now need just 70 high street stores to create a national presence compared to 250 in the mid 2000's. Of course, allied to this is the click and collect (C&C) phenomenon, which is more advanced in the UK (35%) compared with other countries such as the USA (13%) and Germany (5%).

  • Property Vacancies: according to the Local Data Company, the rate of town centre vacancies in December 2013 was 13.9%, the first fall below 14% in nearly 4 years. Subsequently, research by Colliers International (National Retail Barometer Q3 2014) showed that shop vacancy across 15 UK towns and cities fell by the largest margin for eight years between October 2013 and April 2014 with the average vacancy rate by number of units standing at 13%.

  • Lease expiry: Before the end of 2015, retail Landlords will see the largest expiration of income from extant leases in many years, especially in provincial and secondary locations. IPD research reveals that just less than 43% of leases in the UK’s shopping centres are due to expire over the next 2 years, followed by 37% on high streets and 16.5% on retail parks. Potential ‘offloads’ might include: Arcadia; Home Retail Group (Argos Stores); New Look etc.

  • Investment Demand: Colliers Mid-Summer Retail Report 2014 was undoubtedly "bullish" highlighting an unprecedented level of demand for prime assets in each of the retail property sectors in 2013, which accelerated in 2014. Colliers suggest that investment is focused primarily on the affluent "cathedral cities / market towns". The consequence of this is that many secondary and tertiary high street locations are facing challenges provided by "an oversupply of shopping and scaled back sizes of both existing store chains and planned networks of emergent retailers".

  • Rental growth: per pro Colliers Retail report 2014, the worst three performing regions in terms of rental growth are Wales (-9.3%), the South West (-3.1%) and the West-Midlands (-2.3%). Furthermore, vis-a-vis rental growth / decline, three of the bottom four performing locations are in Wales: Newport (-45%); Port Talbot (-43%); Llanelli (-38%) and Kidderminster (-27%).

 

What are the lessons, if any, for policy? There is a structural shift away from retail provision per se to services of all types. As research by Southampton University suggests, there needs to be a better understanding that ‘successful High Streets are those that promote new relationships, creating new opportunities and contributing to resilience’. More than that, policy should recognise that ‘time’ is now the most important retail commodity. Consumer spending on leisure is projected to increase further over the next 10 years with restaurants, cafes and gyms continuing their growth. Leisure ‘offer’ increases not only dwell time but also spend.


Beyond the rhetoric of the so-called ‘death of the High Street’, the reality is this: there needs to be more emphasis on diversified employment, as recommended by the Centre for Cities, and the potential for residential space; leisure and civic facilities are vital; the retail core needs to be smaller and there needs to be a greater acknowledgement that independent retailers add diversity. The purpose of the High Street is being changed and should be recognised in change of use policy.


High Streets require proactive management such as in the guise of Business Improvement Districts (BIDs). Of the circa 180 in the UK, there are 28 extant in Scotland with 20 at ballot stage and 40 odd at gestation stage. This compares with the mediocre situation in Wales where there are just 2 formal BIDs - Swansea and Merthyr.


Local Councils have been too heavily reliant on retail capacity and the associated retail methodology. This point is supported by the Director of Policy at the British Council for Shopping Centres who states that the methodology of retail capacity studies needs a major overhaul.


Do these various ‘policy points’ lay down the gauntlet to the RTPI for a planning review of the High Street?


Last year’s research by the University of Southampton provides a useful conclusion.

 

‘‘The specific situation of a town and the quality of its own analysis, management and actions can have significant impacts on the vacancy rate.’’ In my opinion, the relative wealth (economic vibrancy) and health of a place are pertinent considerations and adaptive resilience will undoubtedly exhibit regional variation.










 

 

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