As we reach the end of the third quarter of possibly the strangest (shopping) year in living memory, many of us will be wondering at what level the UK retail vacancy rate will turn out to be at the end of September. It has risen every quarter for the last two years (reaching 12.4% at end June 2020*), so a further upward tick is almost a given.
What is much less certain is what will happen to all of this space. For quite some time intown retail units, and shopping centres in particular, have been promoted as obvious candidates for conversion to housing. But, as I explained in a previous Perspective (click here for the link to Justin’s previous blog), even in London repurposing intown retail to homes is unlikely to be the panacea many would like it to be.
Certainly, outside London and the South East, if we helpfully value the existing retail footprint as zero, redevelopment is still likely to cost more than the end value of the resulting new homes. Shopping centres are especially tricky to convert to residential as the way they are constructed (for shoppers) makes for inefficient living spaces (for residents).
So, if residential conversion isn’t the answer for all of this space, what is? At P-THREE we think that in many cases retail will continue to be a key component, just not retail as it was before. This ‘new’ retail will be driven by everyday shopping needs and will become closely integrated with a broad range of other, co-related, uses. These might include family leisure, food & drink, flexible spaces for studios, workshops, events, as well as pop-ups, local independents, a market, a local microbrewery, community and medical facilities.
We foresee the emergence of a new asset class: commercial mixed-use community hubs. Let’s call it C-MUCH for short. It’s a creative way of repurposing surplus retail space to provide a balanced mix of uses in a safe environment that is really relevant to its local customer base. Importantly, it can simultaneously create true social value. It is an advanced form of the community shopping centre which already exists.
To work effectively, C-MUCH retail must be much more than a churn of the existing occupier base. Comparison-based shopping, for example, could reduce by as much as fifty percent in some locations and will be replaced by new models and visions, based on local wants and needs. Indeed, in some cases this will include neighbourhood co-working hubs which stimulate local business communities and provide amenities which fit in with local residents’ lifestyles.
In most cases, rental values will fall, which will remove occupational costs as a barrier to entry, a typical hurdle for community-orientated schemes until now. And, as public and private sector partners increasingly join forces, they will enable urban redevelopment based on place, purpose and identity. Looked at from that perspective, whatever the Q3 vacancy rate turns out to be when it is revealed in around a month’s time, it should be seen not as problem space but rather a whole new world of opportunities.
*Source: BRC-LDC Vacancy Monitor
Article by Justin Taylor, Co-founder of P-THREE