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Retail Wednesday 21st September 2016

UK Retail: Heading to new horizons

by Andrew Reavley, Head of Research at Lunson Mitchenall

UK Retail: Heading to new horizons

With the development tap turned back on, Andrew Reavley looks at what lies ahead for our shopping scene.

2016 has, unpredictably, been the most turbulent year since the recession. Against the backdrop of Brexit and the subsequent political turmoil, retail has seen its ups and downs with the decline of BHS and Austin Reed – who would have thought a few years ago these two High Street favourites would cease to exist? The aftermath of the dissolution of both companies has left the retail sector wondering how best to safeguard and prepare for the future, to ensure survival in an increasingly-competitive landscape.

The problem is the sector’s ability, or lack thereof, to know what this future looks like. This year will see some 1.5m sq ft of new floor space being delivered, with a further 11m sq ft proposed beyond 2020. Although this optimistic prediction serves to foster positivity, it doesn’t help to envisage how this space can actually be delivered and how it will function.

Key to delivery is the maintenance of active working relationships with all stakeholders involved, but particularly local authorities. Retail provides an unequivocal asset to regeneration – we only need to look at Friars Walk in Newport and The Broadway in Bradford to see the socio-economic benefits. Yet, what is often forgotten is just how long these schemes took to come about; over a decade in both cases. Thanks to the complexities of the planning system and lack of capital, it was only when both the developer and the local authorities worked in partnership that these developments were unlocked.

The recent case of Silver Hill in Winchester is a prime example of just how vital these relationships should be, and the local authority investment model is one we are seeing replicated elsewhere. It allows for development to be considered holistically – in the context of social gain and the economic growth of that whole region.

Nevertheless, it is not just the pipeline that presents an obstacle to the ultimate success of a scheme. Although investment is an initial hurdle to get over, once completed it is the tenant mix and how this meets with ever-changing consumer demands that really counts towards the success. According to a recent article in Forbes, the shopping centre model of the near future is poised to look radically different to just a decade ago; those not keeping up with changing tastes will face a rude awakening.

We need only look at the colossal shift from retail to e-tail to know that brands are having to keep up with consumers’ desires to be on-trend at all times. Whether it be fashion, electrical goods or the latest restaurant concept, we are nation of fickle shoppers – constantly changing and evolving our tastes to keep up with what social networks and the media deems fashionable that week. The challenge to retailers, their landlords and their leasing agents is therefore how to create a shopping experience that is more enjoyable and fulfilling than online, working with the internet and not against it.

Click-and-collect is one way and is a tried and tested means of enticing shoppers into physical stores. However, retail needs to be more social than that – in other words, know how your customers tick and you can plan to meet their expectations. Other measures such as seasonal or temporary pop-ups have seen equal success. Landlords are having to adapt, creating flexible units that can keep pace with the myriad of new concepts and shop fit-outs.

This obviously poses certain challenges for pre-letting space, as it’s hard to know just how sought-after current ‘popular’ brands will be in three years’ time. Part of the solution lies in being more open to shorter lease lengths and we are now seeing a shift to five to ten year leases and also a proactive approach in managing the retail mix. It offers the chance for schemes to adapt in line with customer demand and retain relevance and, when this model is structured properly, it can be extremely profitable.

With the future of the United Kingdom in a state of limbo, it would seem fitting to return to that wellknown motto: “Keep Calm and Keep… Shopping”. The sector needs to stay nimble throughout these times of change, rather than trying to work with unrealistic estimates of how much new space will be built in the next decade. In the absence of a crystal ball, we need to be strategic and not just look at how to maximise rental income now, but how to prepare and generate rental income in the future.