Can repurposing retail units save the high street?

It has been well-reported that physical shops and retailers have been struggling in recent years due to the shift to internet shopping.

Back in 2021, in the midst of the COVID-19 crisis, Local Data Company (LDC) analysis of shopping centres in England, Scotland and Wales, suggested that 70 shopping centres across the UK were at risk of closure, with at least 30 of them lying at least half empty.

Perhaps unsurprisingly, given the increased pressures on the cost of living and soaring energy bills, the situation got no less bleak in 2022. Data released from the Centre for Retail Research (CRR) revealed that shops were closing at a rate of 47 per day during the last year, with 6,055 large retail chains and11,090 independent businesses shutting their doors for good.

This represents the highest number of retail closures for five years. Whilst these stats might paint a frightening picture for the future of the high street, it should be remembered that with every challenge comes opportunity.

Repurposing retail units for alternative uses has become a growing trend with developers and estate managers looking to capitalise on the prime-locations enjoyed by many vacant spaces. Is it as simple as altering structures and updating cosmetics, as there are many other challenging factors that need to be considered before embarking on a redevelopment.

The new normal

Even prior to COVID, UK high streets have been in decline for several years, with many retailers rethinking their physical space requirements because of changing shopping habits.

Even if this doesn’t mean closing down completely, there is still a trend whereby retailers are moving out of town for cheaper premises, referred to by geographical theorists as The Doughnut Effect (where a city centre becomes empty with all businesses moved to the outskirts).

The issue is compounded of course by the all too frequent collapse of the big brands which once dominated city centres. When the Arcadia Group went into Administration it left 444 stores vacant in the UK, and when Boohoo’s procurement of Debenhams failed to include real estate as part of its rescue package, 97 multi-story department stores stood empty across the UK and Ireland.

Repurposing is becoming particularly prevalent solution to tackling the issue of now redundant UK department store spaces. Previously one of the main attractions of UK high streets and shopping centres, department stores have lost their draw and being closed at an unprecedented rate, as highlighted by issue with the once popular Debenhams, a respected brand with a 242-year history.

These kinds of closures leave owners and asset managers with a sizeable bank of empty space. Although many of these facilities are often difficult to repurpose, the idea does allow landlords and business owners the chance to give customers what they want and value right now. If these areas can meet the demands of today’s consumers, they may once again serve as an anchor, a generator of traffic, and a source of revenue.

Repurposing

Any renovation must, from a business standpoint, be long-term profitable for both the landlord and the occupier.

To make the greatest use of vacant retail space, each property must be individually adapted because of its unique layout and location. Making these areas flexible and adaptive to changing usage may entail going beyond the current construction limitations.

At the height of the Pandemic, the Government pledged changes to the way planning applications would be handled to make repurposing easier and risk-free. Thus, a structure that was once used for retail can now be permanently converted to another use without filing a planning application or obtaining permission from the local authorities.

The Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020 became operative on September 1 of that year. The necessity to enable prompt and responsive repurposing of buildings on high streets and in town centres in response to altering demand served as the primary impetus for this new legislation.

Buildings may now be used in a flexible way by allowing several uses to take place simultaneously or even allowing different uses to take place at different times of the day. The revisions to the regulations were advantageous for landlords seeking to convert retail spaces and work more closely with local governments and planners who understood the need to revitalise derelict public areas.

The Landlord and Occupier relationship

Converting old retail space into a new concept will require the landlord and tenant to develop a closer, and more flexible working relationship as flexibility will be essential, whether it comes through a partnership agreement, management agreement, or turnover lease. For example, to make sure a former department store site is suitable to undertake whatever new use the tenant desires to bring to the area, landlords will need to be more understanding of tenant improvements as part of the lease deal.

Landlords still want stability, even though occupiers desire ever-increasing amounts of flexibility. Although there are many potential uses for converting retail space, landlords can only offer so much freedom. The kind of investor that is ready to invest in redeveloping these locations will change because of this.

The number of long-term investors interested in this asset class is quite small as they tend to be turned off by frequent repurposing and redevelopment as it necessitates a heavy reliance on the skill sets of others to create money. Investors that are less risk-averse are usually the prime candidates, as they often have a shorter 4-5 year game plan.

Possible alternative uses

There is potential in repurposing retail space to draw various visitor types. Incorporating leisure amenities like competitive gaming and leisure centres, health and wellness facilities, dining establishments and food halls, as well as areas for socialising, is proving to be popular.

Many of these alternate applications might produce significant social value, contribute to the wellness of the community, produce a coherent experience with cross- and upselling opportunities, and produce broader economic advantages.

• Leisure: The internet and out-of-town retail parks have made shopping much more convenient, and as such, traditional shopping centres have become less appealing to shoppers. However, if a shopping centre provides a site where customers can spend the day, they are more inclined to visit. Bars, restaurants, children’s soft play centres, auto dealerships, and barbers provide customers another reason to visit a shopping centre and make it more appealing as a day out. Larger retail areas have also given rise to new ‘competitive socialising’ activities including mini golf, escape rooms, and climbing walls.
• Logistics: Vacant retail locations might be utilised to store and distribute merchandise for internet businesses. Given the stated scarcity of industrial space, retail shops in densely populated locations might provide great last-mile logistics space to assure timely delivery.
• Residential: In areas where residential property is in great demand, an empty retail space might be considered an attractive proposition. A bigger resident on-site population may also help to sustain retail sales and demand.
• Offices: Shopping centre units may make excellent co-working spaces since they are frequently well linked, and the neighbouring retail and leisure services make for appealing workplace settings. For example, John Lewis recently announced its intention to repurpose its flagship Birmingham store into a co-working, predominantly office space, following its post-lockdown closure, and it looking to do the same of much of its other underutilised shop space in its larger locations.
• Self-Storage: Shopping centres are often in high-traffic areas, this makes them ideal self-storage facilities. Self-storage has traditionally been located in industrial premises; however, due to a dearth of industrial property stock in 2018, shifting self-storage units to retail properties may assist the problem with industrial facilities.

Commercial space repurposing will undoubtedly become more common place in the coming years. Government reforms to the planning system, for example, could allow abandoned buildings in town centres to be converted to dwellings, potentially addressing the UK’s housing deficit.

As a result of these developments, landlords and investors may be concerned about the long-term viability of their holdings. But because of the present economic situation, prime retail properties will almost certainly become even more available, either for occupational tenants or possible renovation. Local governments should seize the opportunity and seek to play a vital role in the repurposing of the High Street in order to guarantee that town centres remain valuable communal places.