It is no secret that the retail sector is facing unprecedented challenges, which have been both highlighted and exacerbated by the pandemic. The rise of online shopping continues to redefine consumer behaviour, while government policy ranging from business rates to planning regulations has failed to keep pace with the changing landscape. As if these joint pressures were not sufficient in their own right, we now appear to be plunging headlong into the UK’s worst cost of living crisis in a generation.
While all retail types are affected by these ongoing challenges, shopping centres have felt their impact most acutely. This is evidenced by consistently high vacancy rates and a dramatic fall in capital values. And yet, shopping centres also present the biggest opportunities for the creative and radical reimagining and reshaping of retail’s role within towns and cities. As large assets usually under single ownership, they have the critical mass to enable strategic decisions to be made on how space is used, so that value is added to both the centre itself and the town it serves.
With nearly 20% of UK shopping centre space currently sitting vacant, it is time to accept the reality that it is unlikely to ever be filled on commercially viable terms. Amid definitive evidence that the country has an excess of shopping centre space, the time investors and local authorities need explore alternative solutions.
The key questions to be explored by investors and/or local authorities are what role these assets can realistically be expected to perform and what intervention is required to help them achieve their potential.
For some shopping centres in towns with a significant oversupply of retail space, the best option may be wholescale redevelopment that sees them levelled to the ground and completely replaced with new uses. Most of the current examples where full redevelopment and replacement is being pursued in the UK are either being led by local authorities that are in a position to make bold strategic decisions about a town’s retail provision and sacrifice commercial value for the greater good; or private sector projects where shopping centres are located in areas where alternative uses clearly have a higher value than retail.
Many shopping centres, particularly those with relatively high vacancy rates, would benefit from significant changes to non-retail uses, while stopping short of being fully repurposed. A condensed retail offer might be supplemented by a varied range of other uses including leisure, residential, workplace, healthcare, education and community uses. This scale of reinvention is likely to require significant redevelopment or regeneration activity and capital expenditure, with varying degrees of private and public sector involvement. A wide range of innovative mixed-use projects are currently in the pipeline at shopping centres across the UK, which seek to transform them into more diverse modern destinations.
The landlords of better performing retail centres with moderate levels of vacancy may not need to radically redevelop their assets, but a degree of repurposing would still be advantageous so that centres have a broader appeal to modern consumers. While remaining anchored by their retail offer, many UK centres are being repositioned as leisure destinations, with increased food and beverage options, cinemas and gyms to attract younger consumers and families. Flexible space for temporary uses such as pop-up shops may also be suitable in these centres, to support a vibrant, evolving mix.
Who can deliver?
The public sector has a key role to play in leading repurposing activity, particularly in locations where the commercial viability of projects is challenging. Local councils have been actively acquiring centres for regeneration purposes across the UK, making more than one in five of all shopping centre purchases since 2016.
Local authorities are spearheading some of the UK’s most imaginative repurposing projects. Ambitious schemes such as the transformation of Nottingham’s derelict Broadmarsh Centre and the replacement of Stockton-on-Tees’ Castlegate Shopping Centre with a new urban park are among the most exciting placemaking projects currently being pursued anywhere in the country.
Private sector investors are also seeing opportunities in the shopping centre sector, making an increased volume of purchases with a view to adding value through repurposing and repositioning. This helped shopping centre investment to reach a four-year high in the year to Q2 2022.
Ultimately, blends of public and private sector capital and expertise will be needed to drive forward major repurposing and redevelopment projects. Shopping centres still have important roles to play within towns and cities, but bold new visions are needed to secure their long-term futures at the heart of communities.
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