Extinction event? UK shopping centres face redevelopment, and that’s a good thing
Subscribing to BisNow is an excellent way of keeping in touch with property news. Their daily digest of the twelve most read articles is an interesting barometer of what’s hot and what’s not.
“This article below which we’ve shortened is a good example of what we mean,” says Zah Azeem, Partner, Scrivener Tibbatts.
All empires crumble, all eras come to an end. Is the coronavirus pandemic the extinction event that wipes out many local shopping centres?
In some cases, it may just be the proverbial straw that broke the camel’s back. A consensus is emerging that, whilst some shopping centres won’t survive, the valuable town centre sites they occupy will be redeveloped rapidly, if local councils are prepared to support development.
Bisnow finds the silver lining in today’s retail cloud.
UK retail, and the shopping centres and town centres that house it, was already in a tough spot going into 2020, but the novel coronavirus outbreak has been catastrophic. The government has ordered all retailers apart from those selling essential goods like food or medical supplies to close. One retailer alone, Primark, said it would lose £650M a month in revenue.
As a result, all retail property investors, big and small, are in the midst of a mighty rethink. Big names like Intu, currently digesting a 22% drop in property valuations, a £2B loss and an abandoned £1.5B fundraising, are already being touted as being on the “brink of collapse.” Cutting service charges in the second half of 2020, intended to help hard-pressed tenants, doesn’t make the numbers any easier.
So has the moment of existential crisis arrived?
“The shock delivered by coronavirus could, in a way, be a huge opportunity to reshape our town centres, because the truth is they haven’t been working properly for a long time,” Capital & Centric founder Adam Higgins told Bisnow.
“Local authorities will have to help because even if these shopping centres are largely empty of tenants or shoppers, there will be issues like book values and debts secured on the shopping centres, and development may not stack up as a result.
“We’ve an opportunity here to reset town centres, to say that retail domination is over, to create offices and residential which will improve the footfall for the retail floor space that remains.”
Looking at rising vacancy rates, Higgins said local authorities need to hold their nerve, resist the temptation to plan in a mood of panic, and look to the medium term.
Residential is the obvious candidate for alternative use on town-centre land. Thanks to residential land values in London and the South East, NewRiver has reported that an internal review of their entire retail portfolio revealed that its current (retail) valuations were, in November 2019, 87% underpinned by the valuation of the next-best alternative use for each of its assets.
It will take time and money and the challenge is will the capital be made available? Local and central government have a vital role to play here, not just political support but financial support, and it will benefit their town centres.
Don’t give up.
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