This article was written just before the Coronavirus outbreak in the UK, and given the government’s imposed lockdown, it’s clear that this has created further distress to the High Street. Whilst the underlying tone of this article remains the same on the back of the outbreak, the demise of High Street stores, particularly retail, has been exacerbated further. The virus has accelerated the changes that many store owners and investors will need to make in order to create a sustainable and long-term business moving forward.
Since the rise of the British high street in the late 1800s and early 1900s, it was a place in which towns and villages were centred around, and consumers would flock to for retail therapy and social gatherings. During the mid-late 1900s, the rise of fast fashion and increased consumer habits helped grow the British high street into an important aspect of life. It became a place that was central to public living, and business owners thrived from this. The rise in high street fashion brands from the 1960s onwards, such as Topshop, Dorothy Perkins, Miss Selfridge, H&M, and Zara formed part of the fabric of the high street. Retail was at the centre of British high streets, and additional uses such as coffee shops and restaurants were formulated around it.
Despite being so central to the way in which people lived and spent their days, in recent times the high street has become a ghost of its former self. In 2018 alone, 5,853 British high street stores closed, with only 3,372 opening to replace them. The net loss of 2,481 stores was a record, and equated to 16 stores a day that were closed and not replaced with an alternative. It has been estimated the loss of stores accounted for 150,000 jobs lost in 2018.
Analysis has shown that banks, fashion retailers, and electrical stores are among the worst hit by the demise of the high street. Recent years has seen a mass onslaught of recognisable names going into administration or closing stores in order to survive. Household names such as Mothercare has closed 79 stores and put 2500 retail jobs at risk, and Marks and Spencer has announced it will be closing 100+ stores by 2020 and removing 1045 jobs. Big names such as Toys R Us, Maplin, and Poundworld have also completely disappeared from high streets. As well as the big names, the high street is littered with To Let signs outside smaller, empty shells of former boutique stores that have struggled to survive the changes in consumer behaviour.
Online sales sealing the fate of retail stores
It’s no coincidence that the heyday of the high street era began to dwindle in early to mid 2000s, the time in which the Internet rose to become the irreplaceable aspect of our lives that it is today. Spending habits have radically shifted, and consumers are opting to purchase products from the comfort of their home, rather than spend time in high street stores.
The Internet has given rise to fast fashion behemoths such as ASOS, Boohoo and Pretty Little Thing. These online retailers have the ability to undercut the prices of traditional high street stores, and provide next day delivery and free returns if the purchased products are not as desired. In addition to online only brands, the brand names that once adorned the storefronts of the British high street have shifted their business model to prioritise the growth of online sales. When a company has the ability to sell to anyone across the country, this presents a far superior opportunity than focusing on physical stores that can only cater to the local community.
Outside of just fashion, Amazon has single-handedly changed consumer spending habits across all sectors of consumption. As well as competing with bookstores and electrical stores for many years, the more recent launch of Amazon Prime Now, promising same-day 2-hour delivery in some areas, is a service that diminishes the need to visit high street stores.
As the footfall of the high street diminished due to consumer habits moving more towards online sales, the revenue generated from physical bricks and mortar stores diminished and could not offset the rent being paid. Commercial properties were traditionally let to companies on long-term leases, and many of these were agreed at a time when high street spending habits were stronger and these companies could afford to pay the rents. Shops are facing the option of renegotiating their leases to lower rents or are being forced into CVAs/administration.
Permitted Development Uses
As trends are changing and the use of high street retail space is becoming significantly limited, the question for investors and developers is: what can be done with these empty spaces? Are there possibilities to put empty stores to better use, and rethink the space to work in a more efficient way?
One of the alternatives that many investors and developers are considering is the movement towards residential uses. With permitted development rights now allowing owners to change the use class of their buildings, this allows owners to consider stepping away from a retail use to an alternative that is more aligned to modern day consumer habits. Both A1 (shops) and A2 (professional and financial services) buildings can be converted to C3 residential use (up to 150 square metres) under permitted development rights. This allows owners the ability to transform their space into apartments. Typically, residential use of space generates a higher value of a building compared to commercial. However, the idea of turning A1/A2 space into C3 is one that should be taken after considering whether the space suits C3 use – whilst you may be able to turn a high street A1/A2 space into an apartment etc., the idea of having a ground floor apartment in the middle of a parade of high street stores may not be the wisest idea and could pose further funding issues down the line.
Another way in which permitted development rights could be used is through the conversion of A1/A2 space to B1a (offices). Since 2013, the conversion of B1a office space to C3 dwelling house has become a permitted development right. This move caused a trend for developers to convert office buildings into residential spaces, and therefore leaving the availability of useable office space in limited supply. The trend has started to go full circle now, as in some areas with a high demand for offices and limited supply, office space is trading at a premium. If an owner/investor/developer has the ability to transform empty high street spaces into useable office space, and generate a strong yield in doing so, this can be considered a strong option. Whilst offices do not generally create the same length of leases that a bluechip retail tenant would, they may attract a higher value if carried out in the correct way.
Other permitted development uses that can be considered include A1/A2 to A2/A1, A3 (restaurants and cafes) up to 150 square metres, D2 (assembly and leisure) up to 200 square metres, and potentially a mixed use scheme incorporating an A1/A2 space and up to two residential flats. It should be noted that conversion using permitted development is subject to prior approval from the local authority.
Remaining on Trend
The question lies in how a developer can look at this situation and use it to breathe life back into the high street. The trend seems clear that the sector of the high street that is coming to a halt are those which has been displaced by the Internet. The value for landowners and developers is to revive these spaces into businesses that will once again attract footfall to the high street, and give consumers something that is worth leaving their home for.
Typically large health clubs, such as David Lloyd, have been positioned away from the high street to provide large spaces for gyms, pools, tennis courts etc. However, in recent times the convenience of being able to shop and workout in a single location has steered gym operators toward the high street. Between 2017 and 2019, the number of gym openings per annum increased by 15%, from 317 per annum in 2017 to 365 per annum in 2019. This rise was supported by the growth in budget gym operators making use of empty high street spaces. Budget operators are capitalising on this area and growing their portfolio accordingly. Between 2017 and 2019, “The Gym” increased their operations by 75%, “Anytime Fitness” increased their operations by 32%, and “PureGym” grew at 28%.
As well as health clubs and gyms, other sectors that have increased their high street presence include ice cream parlours, vape stores, and surprisingly bookstores.
Recently, there has been a wave of pop-ups across London and major British cities that have reimagined the way in which available spaces are used. Pop-up food and beverage markets, such as Boxpark, have become increasingly popular across the UK. Several developers are taking on large space and carving these up into smaller units that are then leased to small businesses. Other examples of modern age commercial uses include using technology to spark interest in traditional games. The likes of Flight Club across London have taken over former spaces of bars/restaurants and successfully installed their USP dart games to attract customers. Similarly, companies such as Swingers and Junkyard golf have taken the former popular mini-golf craze and turned this into something fit to attract millennial customers.
The next wave?
When considering companies that have done well in reimagining the spaces used in high street locations, it’s clear that many have targeted the millennial market. All the upcoming flight club and swingers, etc. are targeted at students and young professionals.
We live in a country with an ageing population that have spent large parts of their lives with the high street at the heart of their locality, and yet there seems to be a lack of new and innovative uses of space that suit them. In the same way, there has been a mass wave in assisted living and over 65 developments in the residential sector to target the ageing population, the commercial sector is crying out for their alternative. We are continually faced with reports of our elderly population facing times of loneliness and sometimes lacking the appropriate care from within the community, and at the same time, we’re facing an increase in the number of empty spaces on our high street, the next wave in commercial uses could well be something that helps to bridge this gap.
Overall, it is abundantly clear the high street is slowly dying, particularly the retail sector and all businesses that can be replaced with the Internet and technology as a whole. Whilst the country becomes more inwardly looking with goods delivered to our front doors, these empty spaces still have the ability to provide much needed social, commercial, and residential space, providing a developer goes about this transformation in a well thought out fashion. The high street that was once vibrant and full of retail shoppers has come to an end, but in its place provides empty spaces that still have the ability to be the social hot spot for a community to come together. Finding the correct use for each space is key, and delivering this on a site-by-site basis can help to breathe life back into the British high streets.
Image credit: iStock.com/Sterling750
About Nikhil Patel
Nikhil Patel is the Managing Director of Flamingo Investment Group. Flamingo Investment Group is a boutique real estate group, specialising in residential property developments in and around London and the United Kingdom.