macdonald and company
macdonald and company

Who is Shopping for Shops and Commercial Real Estate in the UK?

Posting date: 20 June 2019
Peter  Moore our consultant managing the role

As Consumer Habits Change, Commercial Real Estate Opportunities Emerge

The face of UK retail is changing. High streets and shopping centres are beginning a period of reinvention, which I believe will provide many exciting opportunities for professionals in commercial real estate. There is likely to be a growing requirement for skilled employees in development, regeneration and investment.

Here, I examine how and why UK bricks-and-mortar retail is in decline, how current and ex-retail space may be used in the future, and who is shopping for shops.

Retail Booming, Just Not on a High Street Near You

You don’t need to be an expert in the built environment to realise that town centres, high streets and shopping centres are in decline. In almost every town across the UK, shops are closing as our shopping habits change. 

Data from the Office for National Statistics (ONS) shows that the UK consumer is deserting the high street in favour for their settee. Retail sales numbers have surprised on the upside. In April 2019, retail sales were 5.2% higher than in April 2018. Taking that number at face value, you would assume that the UK retail sector is booming. But it masks what is really going on:

  • Ecommerce now accounts for 18.7% of total retail spending in the UK, up from 17.7% in April 2018

  • Online retail grew by 10.1% year-on-year

  • In the three months to April 2019, retail sales increased by 1.8% compared to the previous three months

  • In the three months to April 2019, non-store retail sales increased by 9.4% compared to the previous three months

Jamie Williams, Client Services Director

Town Centres Risk Becoming Ghost Towns

This shift is hurting bricks-and-mortar retailers. Shops are closing at an alarming pace, as high costs and lower footfall translate into damaging losses. In recent years we have seen several high-profile retail disasters, including Toys R Us and BHS both entering administration, in 2018 and 2016 respectively.

Unfortunately, this is just the tip of the iceberg. In 2017, almost 5,900 stores closed as internet shopping affected fashion retailers, travel agents, estate agents and shoe shops. The analysis by PwC showed that a net five shops closed every day – and this doesn’t include independents.

This pace of closures has accelerated since. In the first six months of 2018, more than 24,000 closures battered high streets and shopping centres, according to data collected by the Local Data Company, which also compiled the PwC data. Once new openings were counted, the net closures numbered 4,402: three quarters of the net closures the previous year, in half the time. High rents and business rates combined to force companies such as House of Fraser, Evans Cycles and Poundworld into administration. Others like Carpetright, Mothercare, New Look and Homebase closed scores of stores.

Still, there is no let-up. In the last few months alone, high-profile failures include a last-minute reprieve for Arcadia (though a quarter of its stores will close), and Jamie Oliver’s restaurant business serving its last supper. When the bastion of British retail Marks & Spencer announces plans to close 110 stores by 2024, you know that the high street is in A&E.

If Britain’s high streets and shopping centres do not adapt, they risk becoming ghost towns inhabited by charity shops and empty units.


Simon Crabb, UK Managing Director

In 2013, £1 in every £10 was spent online. Today, just six years later, that figure has increased to £1 in every £5. Shoppers are shunning shops. 

They are peeved with parking problems, annoyed with aisle traffic, and cheesed off at checkouts. Why spend so much time and money visiting a shopping centre when you can save both by going mobile in your armchair?

Can High Streets Evolve?

British High Street guru Mary Portas has said that she believes retailers must adapt or die. She believes that some big businesses are not agile enough, and that retailers must be more innovative and creative. Perhaps, though, it isn’t retailers that must be more creative, but town planning.

As our retail habits alter, the use of high streets, shopping centres and town centres needs to change. They must redefine themselves. There is some evidence that this is happening. For example, while so many traditional retail stores were shutting their doors for the last time in 2017, the number of cafés, ice cream parlours and beauty stores rose. Currently, it is impossible to replicate the barbershop, beauty store and ice cream experience online.

The shift in consumer behaviour has been accompanied by a shift in how consumers spend their free time. They dine and drink at home, and spend more on entertainment and experiences. Yet, humans are still social creatures. Could this dynamic provide a direction for high streets, shopping centres and town centres? Should they become places where people live, with leisure on the doorstep? Hubs with easy access to education, health, entertainment and leisure?

Turning to the ONS again, we see that high streets in Great Britain are evolving into community spaces. Between 2012 and 2017, high streets saw population growth of 6% compared with 3% in non-high street areas. More than 10 million people now live within 200 metres of a high street.

High-density construction is enabling more people to take up the option of living near high streets. In 1997, 40% of high street residential sales were flats. By 2017, this had increased to more than 60%.

Of course, people like to live near to where they work. While the number of retail businesses on the high street has fallen (down 2% between 2012 and 2017, and accelerating since), the number of businesses grew by 15%. Tens of thousands of jobs are being lost in retail, but being replaced by other jobs. According to the ONS:

  • Retail fell from 29% of high street businesses to 25% between 2012 and 2017
  • Accommodation and food services is up by a fifth, to 14%
  • Health, education and public administration accounts for 6% of all high street businesses
  • Other services industries have grown by a quarter, to 42%

Like high streets, shopping centres are similarly under threat. Shops are closing, and these closures are threatening shopping centres. Nicholsons Shopping Centre in Maidenhead went into receivership in 2018. If more stores close, more shopping centres could follow. Nottingham Trent University’s Nottingham Business School has estimated that around £2.5 billion of shopping centres and retail parks are for sale across the UK. Like high streets and town centres, shopping centres must evolve to thrive.

Reinventing the Shopping Centre

The days of shopping centres being places to go shopping are coming to a close. Operators have long since realised that visitors want more – they want quality time. Restaurants and cafés have become a feature of shopping centres. In the UK, most major shopping centres have substantial food halls, dedicated to the culinary experience.

However, including food and drink on the shopping centre menu is not the only way for shopping centres and high streets to reinvent themselves. Looking at experiences in the United States may give clues as to how our shopping centres may evolve.

·        Shopping Centres for Luxury Living

Pedestrianised streets and walkways, high-end retailers and restaurants, and luxury apartments. This was how Natick Mall in Boston redefined itself in 2007. The luxury apartments were a development project designed to offer a luxury, inner-city living experience in a cheaper, out-of-town location.

·        Shopping Centres as Civic Centres

The Echelon Mall in New Jersey started its demise in 2000, when retailers started closing their doors. Within just five years, only a quarter of the retail space was occupied. Step in the Voorhees local government, which was looking for a new home.

The shopping mall was part-demolished, part-repurposed, and part-redeveloped. The new Voorhees Town Centre includes tree-lined boulevards, residential units, a new town hall and new stores.

·        Shopping Centres as Performing Arts Centres

Leisure and the arts go hand in hand, so when the slump in shopping hit the St. Louis Crestwood Mall, the operator decided to invite the arts crowd to take up empty space. A theatre company took up the offer for rehearsal space. An artist took a unit that had previously been a hair salon. Dancers, artists and galleries all moved in. All were offered cut-price rental deals.

However, in 2011 the mall’s operator pulled the rug from under the artists. A great concept while it lasted. The current proposal for the mall is a high-density, mixed-use development. This would combine residential apartments, office and retail space, medical, and entertainment facilities, all set around a main promenade with a plaza feel. A space for 24-hour living, working and recreation, with the tagline ‘The Centre of It All’.

·        Shopping Centres as Leisure Destinations

Instead of retail destinations, shopping centre operators may redevelop space to attract tourists and fun-seekers.

Ohio’s Columbus City Center was almost empty in 2009, and was damaging local property values and the ability to attract investment to regenerate the area. $20 million was invested in the mall to redevelop it as a park. Nine acres of green spaces, trees and fountains, a carousel, bocce courts (similar to boules), and a life-sized chess set provide a valuable and much appreciated public space for residents. Commercial operators might consider adding leisure pursuits such as wall climbing, laser guns, escape rooms, skating rinks, cinemas, and, of course, dining facilities.

Who is Buying UK Commercial Real Estate?

Despite Brexit and the woes of the retail sector, UK commercial real estate is in high demand – especially from foreign investors. According to JLL, the UK will remain a favoured destination for global capital in 2019.

Foreign investment into UK real estate has surprised on the upside since the UK’s referendum on EU membership. This year, JLL forecasts that a massive £55 billion will flood into UK commercial real estate. It believes that foreign investors will continue to consider all the factors associated with commercial property, including new technologies, shifting space requirements, and high demand for quality assets.

Foreign real estate investment and funds are attracted to the UK’s relative stability and economic outlook, as well a favourable tax regime for commercial property investment. In particular, Asian investors are targeting UK retail. In 2018, Asian investors ploughed around £10 billion into UK property. This was largely into office space, but the focus is shifting to retail. Late last year, an Asian investor paid more than £230 million for a 50% stake in Hammerson’s Highcross shopping centre in Leicester.

William Glover, Managing Director, Macdonald & Company

“For Hong Kong investors, the yield play is always paramount as is the attractiveness of a weak sterling. For mainland Chinese investors, it is more about moving capital offshore but this has recently been much harder due to government restrictions” comments William Glover Managing Director, Macdonald & Company - Asia Pacific

Shopping centres are adapting for the new consumer environment, providing a new-age retail experience and more leisure facilities. High-quality shopping centres offer foreign investors attractive yields and better cash-on-cash returns. Many of the world’s top investors are seeking to increase their exposure to real estate. JLL reports that if allocations were increased to 10%, this could result in another £550 billion (US$700 billion) of long-term investment into global real estate. The UK is likely to see a slice of this.

One fund that recently announced plans to increase allocations to real estate is Japan’s Government Pension Investment Fund (GPIF). Its £1 trillion investment strategy provides a benchmark for other Japanese pension funds, which would be likely to follow GPIF’s lead.

Peter Moore, CEO Macdonald & Company

Shopping for Shops - Perspectives

Rob Tincknell, Partner at ARELI Real Estate comments “The UK retail market is under strain, but intelligent investors understand that the strength of the UK economy will help it weather any storm, just as it has in the past.” Rob continues, “Shopping centres and town centres will need to adapt to changing consumer habits, which themselves create opportunities. Seeing those opportunities and taking advantage of them is what smart investors are doing.”

Peter Moore, CEO adds “The changing face of retail in the UK is likely to continue, and the pace of change is likely to accelerate. This will provide an increasing number of exciting job opportunities across several disciplines, with some of the most attractive in development, regeneration and investment. As the RICS Preferred Recruitment Partner, we are already searching for talented professionals with the ability to turn foreign investment into real-world change for 21st century lifestyles.”

To explore your options and assess the opportunities available in commercial real estate, connect with our Development Team or browse property development jobs.

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