Why can we be cautiously optimistic about our shopping and eating places?

Yesterday, in the very smart offices of leading law firm Berwin Leighton Paisner (BLP) in London, I delivered to an audience of over 130 people LDC’s 12th bi-annual report on the UK’s vacancy rates. These vacancy rates are a key barometer to the health of the places we shop, eat and are entertained in.

In its simplest terms a high street, shopping centre or retail park that has large a number of empty units is not top of the consumer’s list when it comes to ‘places I must visit’.

Consumers are very aware of their environment and everybody looks at where they live and work and has a internal life time tracker that asks the question – ‘is my area on the up or the down’? With so many property owners be it commercial property or residential property this is a critical aspect to the value of what you might own.

The Key Facts

So back to yesterday and the report we published which was titled ‘Cautious Optimism‘ and why I believe this is the most appropriate view to take. By way of introduction and context below are the key facts that the report discussed;

  • In H1 2015 the GB retail and leisure vacancy rate reduced from 11.9% in H2 2014 to 11.7% (-0.2%)
  • The number of vacant premises in the top 650 town centres numbered 25,160 (-329 during H1 2015). Overall across all locations tracked by LDC there were 49,591 (-701 during H1 2015) vacant premises
  • Wales has the highest national vacancy rate at 0% (+0.1% since end 2014).
  • The best performing region by a long way remains London at 7.9% (0.0% on end 2014).
  • The worst performing region is now tied at 4% with the North East (-0.5% on end 2014) and the North West (+0.1% on end 2014)
  • The North East has shown the greatest improvement at -0.5% in H1 2015.
  • Highgate (Greater London) is the best performer in H1 2015 with no vacant units (no change versus 2014).
  • Burslem (West Midlands) has the highest vacancy rate at 34.3% (+4.9% on 2014)
  • Shopping centres continue to have the highest overall vacancy rate at 14.8% (-0.4% since end 2014), followed by Town Centres at 11.7% (-0.2%) and Retail Parks at 6.6% (-1.4%).
  • Retail Parks, whilst performing best overall, see similar differences to towns and shopping centres with 540 basis points difference between the highest regional retail park vacancy in the North West (10.0%) and the lowest in the East Midlands (4.6%).
  • Shopping Centre vacancy is clustered in the range between 11.9% (South East) and 19.6% (West Midlands) with London (9.7%) being a significant outlier.
  • In H1 2015 the number of vacant units in town centres that have been unoccupied for more than three years has risen by +24.4% to total 9,650 units (+1,892)
  • 23 of the 40 (57.5%) worst performers in H1 2010 have improved their vacancy rates in the last 5 years.

A summary of the report can be downloaded here H1 2015 Vacancy Report Summary

My Opinion

My thoughts on the unique insights the data shows are below;

“Cautious optimism is exactly what the latest vacancy rates data from LDC reveals from the first half of 2015. The good news of reducing vacancy rates has run in parallel to better economic performance within the UK, and growing retail sales and consumer confidence. The improving vacancy rates across the country has been seen in all location types with improvements of high street units (-0.2%), shopping centres (-0.4%) and retail parks (-1.4%).

The devil is however in the detail when one looks at more defined geographies. For example, whilst at a GB level there has been slight improvement but at a country level Wales has seen a marginal increase in its vacancy rate alongside the East of England and the North West. All other areas have seen improvements and in the case of the North East by as much as -0.5%.

At a town centre level there is considerable variance between the best and the worst, as one should expect with the gap being over 25% when one looks nationally. The towns with the highest vacancy rates all have around one in four or one in five shops vacant which is a blight for many towns that should not be lost when considering the overall positive trend nationally. Locations such as Newport in South Wales, Stoke on Trent in the West Midlands and Stockport in the North West have had high shop vacancy rates since 20011/12 and in the case of all three are continuing to rise. Conversely previous high shop vacancy black spots such as Margate, Nottingham and Dudley have shown a marked reduction in their vacancy rates from one in three units lying empty in 2011 to less than one in five now. This is progress and as a result of proactive management and should be applauded.

The persistence of vacancy is a major indicator of structural decline. As LDC has been tracking vacancy rates since the start of the recession in 2008/9 it is one of the best indicators of real change and performance in our town centres, retail parks and shopping centres. The persistent vacancy analysis reveals two significant facts. Firstly, of all the town centre vacant units just under a third have been vacant for more than three years. This equates to nearly 10,000 empty shops, which is the equivalent size of over six Liverpool city centres. Secondly, if units are not let within a year then there is a general trend that they will remain unoccupied and this is particularly true for secondary retail parks and small (less than 200 units) high streets. The conclusion from this can only be over supply or the wrong size of space in the wrong location.

2015 and beyond could start to see further improvements but this is more likely in fewer centres than across all locations. Caution has to be the watch word both in terms of consumer confidence, the impact of any interest rate rise, the impact of currency fluctuations especially on supply chains and finally the explosive growth of certain business types in a fiercely competitive market which has led to talks of a bubble. Only time will tell.”

The Expert Panel Opinion

The most important part of the events that LDC hold is in what the audience and expert panel say with LDC’s insight acting as a catalyst for informed debate. To that end we had an excellent panel, chaired by Malcolm Moore from the Financial Times, who were;

Emma Simpson from the BBC who regularly appears on our TV screens reporting on what is happening up and down the country

Vicky Fowler, our host, and a partner at BLP who is an expert in planning

Alan Giles, who is currently at Said Business School, University of Oxford (an LDC academic partner university) but who has had an amazing career as a retailer and most recently Chairman of Fat Face and now a non executive director for the Competitions and Markets Authority as well as Rentokil Initial plc.

Jackie Sadek who is currently a senior adviser to the Secretary of State for Communities and Local Government (Greg Clark) as well as the Minister for High Streets (Marcus Jones, a previous LDC panellist). Jackie is the country’s foremost regeneration expert and someone who was also part of the Grimsey Review team.

The panel!

LDC_Panel_3Sep15

Malcolm Moore, Alan Giles, Emma Simpson, Matthew Hopkinson, Vicky Fowler, Jackie Sadek

The panel had a number of interesting points and one was the fact that the north south divide has always been there and always will, even with the Northern Powerhouse and the Midlands initiative.

Of note, however, is the variance in regional vacancy rate between the West Midlands (15.9%) and East Midlands (13.2%). Even today on the Today programme Guy Grainger of Jones Lang LaSalle was talking of the rise of Manchester and the decline of Liverpool which was interesting to hear in terms of sub regional variances.

Planning was of course a hot topic and the variance in property prices and planning policy makes this a challenging subject when you compare say Rochdale to Reigate. Change in planning use classes is an important factor here especially for retail parks in terms of their use type as this has a massive impact on who can occupy and this value. Bulky goods (carpets, washing machines etc) is very restrictive and what people are after is Open A1 consent so a variety of shops can be gathered along with A3 consent for food and beverage units.

Alternative uses for these 10,000 long term (empty for 3+ years) was a hot topic and the role that medical services can play I believe is key here and a new development at Tottenham Hale which has a large dialysis centre.

So why are we not seeing more of these initiatives as the demand for these services (including MRI scanning) is increasing significantly? In many instances such services do not need to be in a hospital (or a port-a-cabin/container) in a hospital but could be in these empty shops providing local Convenience Care to communities. For those who care of sick people who may have extended hours treatments then providing an environment for them to go to whilst treatment takes place surely makes sense? Centralisation of services, policy and many things does not always work and the devolution agenda currently is testament to that. Is localism the opportunity to address immediate health service issues along with community space issues and create more economically and socially vibrant communities that are more engaged and connected?

High streets have a number of structural issues that mean that change is not easy, it is expensive and often impossible to achieve due to too many divergent stakeholders – landlords, occupiers, councils, banks and residents to name but a few.

Whilst shopping centres are often big buildings requiring millions of pounds to change they are owned by one entity in general and subject to a good relationship with a local authority can create change. There are many examples and perhaps Nottingham Council v Intu on the plans for the Broadmarsh and Victoria centres is an example where this was very challenging but agreement has now been reached.

The Pallisades Shopping centre in Birmingham is a good example where action has happened but as one person has remarked has it become a Welcome to John Lewis Birmingham?

Retail parks and go one step further and think Box Park in London and you have the ideal situation for change – single ownership, large pieces of land and the ability to put a shed up in weeks, reconfigure it easily as steel and not brick and adjust the layout to deliver the best outcome. Below is Fosse Park, Leicester (courtesy of Leicester Mercury) and Box Park, Shoreditch, London (courtesy of @BoxPark)

Fosse Park Boxpark

One size does not fit all when it comes to how to plan for success in our town centres and perhaps all too often there has been a tendency towards a magic wand approach where what works in X place can be applied just as well in Y place.

One size does not fit all when it comes to how to plan for success in our town centres and perhaps all too often there has been a tendency towards a magic wand approach where what works in X place can be applied just as well in Y place.

Wrong answer. As we know that every place is very different both in terms of its heritage, people, economy, aspirations, competition and capacity to change. Back to the Today programme this morning – so why is Liverpool in decline and Manchester thriving Guy Grainger of JLL?

So in conclusion the UK’s economic back drop is cautiously positive (August retail sales may suggest otherwise) which means for improving consumer confidence and this spend but interest rates, consumer debt and the fiercely competitive market retailers and leisure operators have to service in makes for very strong headwinds and as Jimmy Dean said;

“I can’t change the direction of the wind, but I can adjust my sails to reach my destination.”

2 thoughts on “Why can we be cautiously optimistic about our shopping and eating places?

  1. Matthew

    Sorry I could not be there yesterday. I enjoyed following the Summit on the twitter #LDCInsights stream. With a particularly Scottish angle I noted the two-speed England that is apparent from your regional data and that Scotland as a whole seems to be clinging on to the “better” of the two English parts. I tweeted as such. Wales on the other hand as you point out is much more akin to the poorly performing parts of England.

    I find that important as Scotland is often compared by others to “the UK” or to England as a whole, whereas we would argue that we need to understand the very distinctive patterns in England in order to see where Scotland actually stands.

    Anyhow, as ever fascinating stuff.

    Leigh

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