Retail round table 6 July 2023

Newmanor Law and Begbies Traynor co-hosted an illuminating round table discussion on the retail industry with asset owners, lenders and advisory professionals. The conversation was expertly chaired by Duncan Lamb.

David Birne of Begbies Traynor gave a summary of the retail market which continues to face increasing cost pressures. Over 20% of retailers surveyed by Begbies said they were not confident they would still be trading at the end of this year. Rents, utilities and merchandise are still going up which makes for a tough environment. The only cost decrease is rates.

Alex Pelopidas of Newmanor Law talked about the reducing need for retail space and how it could be repositioned in the right circumstances. In principle shopping centres can be repurposed to mixed-use schemes but it can be difficult to make the sums add up in the present climate.

Our Chatham House discussion ranged far and wide, including the following:

• Many retail businesses survived the pandemic on government loan support but are now struggling to pay it back. This adds to the many other negative pressures on the high street.
• In this economic climate retail chains are having to make difficult decisions. The consensus in the room was that struggling retailers should consider creditors voluntary arrangements sooner rather than later as cash can burn at an alarming rate. This approach gives the retailer more options to get better terms.
• In many cases there is a disconnect between landlord and tenants with occupiers concerned that they are not getting enough help from landlords. Our contributors felt that it makes long-term sense for landlords to take a supportive approach to sustain the long-term viability of their centres.
• Independents generally have fewer resources and are struggling. Some shopping centre landlords are prepared to offer turnover rents but those who do not are in danger of creating bland environments lacking individual character.
• Some shopping centres are using vacant units for leisure purposes such as escape rooms, cinemas or food and beverage, though there was a lot of concern among the group at the current failure rate of F&B businesses.
• Several asset managers expressed frustration that local authorities are slow to grant changes of planning use to accommodate the changing tenant mix. Class E is helpful but greater flexibility would be better still.

Many shopping centres are now decades old and require improvement and modernisation. Poor insulation and leaky, hard-to-heat atriums need to be dealt with, but at current interest rates the build cost environment makes the necessary improvements hard to do. Where improvements are made the costs are generally passed on to tenants through service charge, compounding tenants’ issues further. There is much to continue to discuss in the retail conversation.