The future of Britain’s high streets 

If the statistics are to be believed, the high street as we know it looks doomed. The Local Data Company (LDC) reports that shop vacancy rates stood at 14.3% in the second half of last year and are set to rise in 2012. And in a separate report compiled by the LDC on behalf of PricewaterhouseCoopers, grim findings showed multiple retailers closed 14 stores a day on average across Great Britain last year .

These figures spell just how tough it is on the high street for retailers. High streets have taken a battering since the recession hit and the retail property landscape has changed dramatically.

But while there are few signs at present of the economic environment improving, the death knell for high streets has not yet been sounded. As Sainsbury’s chief executive Justin King has said, the high street is “not doomed”, rather “a radical rethink may be needed” in some areas.

But just how much has the retail property market changed since the recession? PricewaterhouseCoopers insolvency partner Mike Jervis says multiple retailers realised in the recession that “they went on a store opening spree in the 1980s and 1990s that has since meant a lot of them have gotten into distress”.

He says lower consumer spending and a migration online has meant retailers do not need endless numbers of stores. “You have to accept evolution,” he says. “And the business model of 500 to 700 stores is old now for most retailers.”

The property market is already feeling the effects of this trend. Many retailers such as Arcadia, New Look and Thorntons are seeking to offload chunks of their portfolios.

“The trend for most retailers is fewer but bigger stores and to have a truly multichannel offer,” says Jones Lang LaSalle head of UK retail Guy Grainger. He explains that while many retailers have started pruning their portfolios, most have only just started to dip their toes in the water. By 2015, 50% of leases across the UK will expire, he says, giving retailers the chance to negotiate better rents or get out of underperforming stores.

He also points out that those lease expiries are not just in secondary locations. For example, 150 leases are up for renewal at Bluewater in Kent in the next three years, a similar number at the Trafford Centre in Manchester in the next 18 months and most of the stores at West Quay in Southampton will expire in the next three years.

“The recession kick-started store reviews and online has accelerated it,” says Grainger. “And while we have already seen the start of this, there is a lot more to come.”

New Look group property director Richard White, a member of the Property Managers Association, explains that while the retailer is reviewing its portfolio, there are still opportunities to open new stores. “We are analysing everything and undoubtedly there will be some markets that we don’t want to be in, but in some areas we may seek to relocate to a bigger store for example,” he says. “There is still a big desire in the UK to go shopping in local market towns but there will be some contraction.”

This contraction seems to have hit secondary market towns in particular. When Woolworths collapsed in the credit crunch, many such towns were left with a big hole and since then dozens of other retailers taking secondary space have hit the wall, most recently Peacocks.

Grainger says some of the stock to come out of administrations – such as many Peacocks stores – offer good sites and will get snapped up but “there is still a lot of obsolete property in secondary locations”.

He explains: “The change we’ve seen over the past couple of years is for discount retailers such as the pound retailers or food retailers grabbing good secondary locations that have come out of administrations, but a lot of space has just been left vacant. In some cases landlords have been flexible in order to re-let that space but a lot is lying empty.”

But just how flexible landlords have been and are continuing to be since the recession is a moot point. White says some are proactive in building partnerships with retailers, but “there is still a significant number of landlords who do not want to admit there are any problems”. Just one example, he says, is the fact that “a lot of landlords are still not interested in offering monthly rents”.

He says landlords need to take a longer-term approach. “The sad fact is that some of the retailers that have gone into administration might have traded themselves out of trouble if landlords had been flexible.”

Capital & Regional managing director for shopping centres Mark Bourgeois says landlords and retailers have always negotiated hard and this remains the same today. “Each party wants the best possible deal and this was just as true in the golden days as it is now.” But he adds that what has changed is the level of communication between landlords and retailers, and both benefit from a more open and direct relationship. Bourgeois believes landlords have become more flexible, with monthly rents generally given for new leases, and five-year terms making the upward-only rent review a non-issue.

While it’s clear some landlords are offering flexibility, there are still swathes of empty properties. So what will happen to the vacant units nobody wants? King says the industry needs to recognise that the best high streets are a mix of retail and other activities. “The best high streets are easy to access, with clean, tidy and well-invested public areas,” he says. “We need to be brave enough to re-shape the high street and allow empty shops to be converted for other uses such as residential.”

Nick Symons, partner at property advisor MMX Retail, argues that while some shops can be converted for other uses, “the assumption that retail units can be converted for residential use is, in many cases, naive”. He says single units are not necessarily suitable for such a change and a wider redevelopment to create a residential block would need to be considered to make it financially viable and beneficial for the community.

He says landlords have other choices for empty shops, and many will consider an alternative use to avoid empty rates liabilities. This, he continues, will manifest itself with temporary lettings but also community projects and charitable activity. He points to Land Securities’ West 12 shopping centre in Shepherd’s Bush, London, whereby “a community book project provided a great footfall driver and ensured the unit escaped empty rates tax”.

While the recession has driven many of the changes to the retail property market, the impact of the internet is the other major factor.

Lunson Mitchenall director Peter Courtney says the speed of technology will determine how multichannel plays out, but “the advantage of 4G and beyond will see the demise of certain mass formats, most obviously music, entertainment, books and electronic games”.

Courtney believes that fashion and comparative shopping will also become more experiential.

Jervis agrees. “We will see a rise in creative uses of space, whether that is collection points for click-and-collect, showrooms or trial ideas. With everything online we need a reason to go shopping and retail theatre will give us that.”

Retail never stands still and with the combined effect of the recession and the internet, the change has possibly never been greater. But as Jervis says, shopping is a national pastime and there will always be thriving high streets but they need to evolve with the least possible pain to survive.