Today’s market: a matter of space and time

If you are fortunate enough to live in a cathedral city or perhaps one of the UK’s better-looking university towns, you’ll be relatively unfamiliar with the phenomenon of empty units. According to Mat Oakley, a director in the retail department at Savills, between 4 and 5% of retail properties in locations of this kind are currently empty.

However, if you happen to find yourself in most other towns, voids are currently hovering around the 14% to 15% mark. And if you’re in one of those towns regarded by retailers and developers as blighted, the figure could rise to as high as 50%, according to Oakley.

Pop-up shops

By any standards, high streets where half of the available units are empty are not going to prove an attractive proposition to would-be tenants looking for somewhere to set up shop. Empty units equate to unwanted and, by definition, generally un-shopped destinations and therefore there are very few retailers that will be prepared to sign on the dotted line.

All of which, to an extent, explains why the very biggest shopping centres and the leading high streets still appear to be full - their landlords cannot afford to let them appear to be anything else. The phenomenon of pop-up shops has certainly helped both retailers and landlords to maintain the appearance of everything being ship-shape.

Mark Boor, UK head of asset management at Australian developer Lend Lease, says: “We have really focused on high-quality pop-ups rather than temporary shops… that look temporary. I would defy people to walk round our centres and spot the temporary unit.” He continues: “And in a couple of cases, we’ve managed to convert these into five-year leases.”

This sounds like good news and with retailers such as Gap, Myla, Disney and even Dr Martens all filling spaces that would otherwise be void, there are even positives for shoppers in terms of the breadth of selection in a mall. For developers,particularly those that are listed, the idea of being able, in the current climate, to stand up at a shareholders’ meeting and say that occupancy rates are running north of 70% must seem intoxicating and a recipe for survival.

But pop-ups, short terms lets and easy rental terms are finger-in-the-dyke measures and sooner or later, the real state of the nation will become apparent. And even in the best locations, it’s a question of deals being done, rather than contracts being signed.

Chris Warren, a partner with the retail team at Cushman & Wakefield, reflects: “The effect of all of this [the recession] is that the deals that are being done by landlords may be less palatable to them. But a decision has to be made about whether to strike a deal or have empty units, which may effect the value of a scheme.”

Future developments

With all of the space that appears to be going begging therefore, are we likely ever again to see new developments of the Westfield London, Cabot Circus or Liverpool One ilk emerging from the pipeline? All of these characterised the retail property world prior to the Lehman Brothers debacle and surely things are different now?

If we do however, will things be the same, given all that has gone on and the pain that has been endured by landlords and their tenants during 2009?

Ronan Faherty is one of those who is optimistic. As commercial director of the retail portfolio at Land Securities, he is well placed to imagine the shape of things to come post-downturn: “I do believe that development will come back. I really believe that, but it’s a matter of the timing. There are gaps, not many, but there are still gaps,” he stresses.

Land Securities’ St David’s 2 centre, which opened in Cardiff on October 22, is the focus of much attention this year with many saying that it is probable that it will be the last of its kind, for the foreseeable future anyway.

However, things are unlikely to be that different when the time is deemed right to resume regenerating our towns and cities with retail developments, according to Boor: “The fundamentals haven’t changed. Will retailers want to go there and will shoppers want to visit? Not much is going to change that.”

Oakley is more cautious: “Unless you’ve got a pre-existing debt package [to finance a new shopping mall] from some years ago, there’s no prospect of getting a package at the moment.”

For Faherty, things are changing and developers and retailers will be paying much greater attention to shoppers and their needs: “Development will be much more targeted and much more specific than before. If there’s one positive to come out of this, it must be that collaboration between landlords and retailers will have become closer.”

However, that collaboration will have to contend with the unused retail space left by the likes of failed operators such as Woolworths, Principles and Zavvi — all of which will need fresh tenants ahead of any meaningful new development. This could still be some way off.