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COVID-19: “A realignment of thinking about reliance on retail-led regeneration”

 

On many occasions during the past 20 years I have warned about the perils to localities associated with retail-led regeneration schemes in towns and cities – and, in fact, I was previously concerned more about the direct impact on other parts of the city centre.

In 2009 I wrote a paper about the more worrying impacts of the successful and highly praised Westquay Shopping Centre in Southampton. It does not bring me any joy to know that since the paper was published in the Journal of Place Management and Development, excepting the main street adjoining the new centre, the rest of the existing retail areas of the city centre has been effectively crippled.

Unintended, although often predictable, consequences of bright new shining developments which could only be afforded by the usual fascias of corporate retailers offered a new showcase to attract people into town and city centres always carried a risk which many local authorities have studiously overlooked. Unfortunately, with the current and future Covid-19 effect, the perils of these developments are now likely to have major negative impacts.

Anyone with knowledge of Rochdale will be aware that the local authority there had a tie-in with a developer in that their town’s market was incorporated into a new indoor retail centre. Rochdale itself was badly suffering as a retail centre from the competition offered an easy journey away in Oldham or a bit further away by Manchester city centre or the Trafford Centre. The owners of the retail mall in question went into administration and ultimately ceased to exist. Yet the mall, with its tenants and the attached market hall, were still trading. In these circumstances the Treasury solicitors take formal ownership of the property in the ancient vestige of feudalism known as Bono Vacantia.

Any property in that condition is in effect in limbo. No-one collects the rent, although contractually all tenants remain liable. No-one maintains the fabric and, crucially, no new tenants can be signed up. No marketing is carried out and no leases can be renewed at expiry. Hardly the features of a dynamic retailing centre.

I have no idea how many times malls have faced this situation, but Covid-19 is likely to be presenting the highest likelihood since retail malls first opened in the UK for a catastrophic level of similar failures. It will not be entirely the fault of Covid-19; indeed it will be the fault of a complete lack of foresight on the part of many actors in the retail industry, the retail property market and local authorities since the credit crunch 12 years ago signalled a need for caution.

The UK already had a glut of retail space and yet, as had been the case for the previous 50 years excepting a short-lasting moratorium on the building of new centres around 2009, the impetus continued. Bright new shining centres which were going to achieve great things for the local economy. Then things started to go wrong.

In the past ten years there has been a rise in the number of Company Voluntary Arrangements taken out by retailers at cost to the landlords. The increasing numbers of these, where retailers had not managed to find a means of satisfying their investors without continual expansion, inevitably was going to end like a train hitting the buffers. Sadly, the trains are entering the terminus simultaneously on adjoining platforms.

It is difficult to be too sympathetic for the landlords either since they too lived in this world and were surely aware of the new trading environments of retailers post-credit crunch which was then exacerbated by the Brexit dip. I accept that it would have been difficult to predict the dire impact of Covid-19, but there seems to have been systematic imprudence by all concerned in that within a month of this pandemic affecting the UK alarm bells were already starting to ring.

As I write this, the very largest of the retail property investors and landlords, the owners of some of the largest and most significant retail centres are haemorrhaging cash and major investors are trying to divest their holdings. These firms were already selling off assets below their book value, such as St. Oswald’s in Gloucester which was bought by the local authority last year (although how sound an investment that will prove to be for the local taxpayers is another story).

A major US pension scheme whose fund is managed by the Alaska Permanent Fund Corporation are conscious that retail investment in the UK has underperformed and are seeking alternative investments potentially affecting a range of places including Bromley and Warrington. The Abu Dhabi Investment Authority has chosen to offload its 50% stake in the Oracle in Reading. Lendlease is trying to offload its 25% stake in Bluewater.

Investors have been blocked from withdrawing funds worth a combined £10.9 billion after valuers told them that it was impossible to accurately price their assets due to the uncertainties caused in the markets by the pandemic. The retail situation is not looking good for these investors either. Debenhams have announced that eight stores will not reopen after the lockdown. Others are seeking to make massive redundancies and their already weak positions must cause concern for the viability of a host of chains. Those whose supplies of seasonal stock, especially fashion, will be looking to find ways to sell it off – probably at a loss.

Even after the lockdown ends, there is unlikely to be an immediate return to old-fashioned crowd based sales, so alternative strategies will need to be found. This is new ground for everyone, but given the evidence of their reluctance to change direction following the 2008 credit crunch, I wonder how imaginative they will now be to face these new challenges?

The bottom line is that retail investment will drop. Retail property investment has become toxic. These things may change, but not anytime soon. The challenge for local authorities is to consider what they can do? They will be faced with the potential of higher unemployment, reduced business rate revenues and a great deal of empty property blighting districts.

Even as I finish writing this article, the news has come in that Intu, one of the largest of the shopping mall owners and managers in the UK, has set upon the route to administration. Covid-19 will naturally be blamed, but the underlying causes long pre-date the pandemic.

John Orchard is a Member of the Institute of Economic Development, and Managing Director of Welbeck Retail Management Ltd

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