As if the news isn’t uncertain enough at the moment, it seems that the retail sector continues to be buffeted by a gloomy outlook. The high street is under threat from all directions; the chancellor wants to make it easier to convert shops into homes; shopping centres are on their last legs; and major retail landlords are cutting their exposure to the sector and selling assets.
And yet councils are continuing to invest in retail sites. Over the last five years, local authorities have spent £3.8bn on commercial property with retail accounting for over a third of this. Taken at face value, this appears puzzling. However, it’s not as misguided as it may sound, particularly when austerity has bitten. And, if councils take an intelligent approach to maximising the use of land and bolstering retail assets to diversify income, they – and their constituents – will reap the benefits.
The headlines may suggest otherwise, but investing in retail presents a host of opportunities for the savvy investor. Last year, the proportion of retail sales made online was 16% – but that still leaves 84% and billions of pounds being spent in shops. Certain types of retail, for example out-of-town-retail parks, are seeing an investment renaissance as they continue to attract local authorities and funds that spot their potential.
The keys to profitability have changed and prime placement in a town centre is no longer necessary for success. With many councils putting the squeeze on parking provision by selling or further limiting spaces, shoppers are finding it increasingly difficult to visit their high street.
A retailer’s location, while still a key comparator, is increasingly becoming less important to the overall offer for the new consumer.
The sector is moving towards more experience-based retail and looking for space to include desirable and different in-store concessions. And, as major draws for shoppers, strategic anchor tenants, such as discount supermarkets, continue to play a significant role in the success of sites. These often require large units and so cannot be accommodated on the high street. As such, retail parks offer the convenience and accessibility that town centres do not – often with free parking to boot.
It’s this availability of space that makes out-of-town sites attractive investment options, offering a means to boost income streams. There is still value to found in the sector; councils just need to understand the best way to secure it.
Retail isn’t just retail anymore – and councils should take note. To maximise the use of land and boost values, major retail landlords have been investing in plans to develop build-to-rent (BTR) homes on their flagship retail sites. By repositioning these assets, landowners can boost and diversify income streams, helping to deliver returns that are sustainable over the long-term.
We are all well aware that we are in the midst of a nationwide housing crisis; retail sites can help address this. Aviva Investors estimates that 170,000 new homes could be built on the 24 million square feet of land currently occupied by retail parks and identified as suitable for mixed-use developments.
BTR housing is now better understood by local authorities which are setting up development and housing investment arms to stimulate housebuilding and provide future income for councils. The sector represents a long-term and stable mixed tenure asset class that is continuing to grow in popularity. BTR is particularly popular with young professionals and families; exactly the sort of cohort retail landlords need to attract, providing ready-made footfall for shops on these mixed-use sites.
Retail is facing severe challenges, but it would be a mistake to dismiss it as a viable investment option. Done intelligently, councils can reap economic rewards allowing them to protect frontline services and boost housing supply – that’s hard to argue with.
James Duncan is a partner in the real estate team and head of BTR at Winckworth Sherwood