Five years have passed since former Wickes, Focus and Iceland chief executive Bill Grimsey published his initial report into the health of the high street.
Today marks the formal launch of the second edition of the initial review, which has been compiled using data from EG’s specialist retail analysts and Radius Data Exchange. The first report – launched in 2013 – documented “An Alternative Future for the High Street,” a vision delivered in the face of some testing trading conditions and after the disappointing inertia following the government commissioned Portas Review in 2011.
So why a second review? A lot has changed since 2013. Consumer habits have shifted and the retail sector has been disrupted by the continued growth of internet spend. With CVAs and administrations dominating the front pages this year – House of Fraser, Toys R Us and Maplin among dozens of others announcing store closures and in some cases complete failure – now seems the perfect time to shine a light on what is really happening. And, more importantly, offer some concrete solutions to fix the problem.
The top line of the report states that local authorities need to be given more powers. They need the final say on planning permission, they need to be able to prevent land banking and to encourage landlords to fill empty shops.
The review is split into three main sections, further dissected into 25 main recommendations
The creation of a more supportive environment
Government and planning
Smart implementation of technology
Among the top recommendations are calls to replace business rates, create a new Town Centre Commission (which should develop a 20-year strategy for local high streets) and accelerate ongoing digital transformation in smaller towns in the UK.
Here’s a breakdown of what you need to know:
2018: Armageddon on the high street
2018 has been dubbed ‘the year of the CVA’ following a tidal wave of store closure programmes and administrations from numerous high street brands. House of Fraser has filed proposals for a company voluntary arrangement process, putting 31 stores at risk of closure, high street favourite Marks & Spencer has announced plans to close 100 stores by the end of 2022, specialist floor retailer Carpetright is going ahead with its CVA, while supermarket giants Sainsbury’s and Asda have confirmed plans to merge in a blockbuster deal that would hand Asda’s current owner Walmart around £3bn in cash and a 41% stake in the combined business.
Other chains that have struggled to survive against the backdrop of a changing retail landscape include Toys “R” Us, Maplin, New Look, Jamie’s Italian, Prezzo, Carluccio’s, Select, Bargain Booze and Byron Burger.
EG, using Radius Data Exchange, has mapped which towns are most at risk from shop vacancy and what areas are set to lose the largest amounts of space
So, with these perilous trading conditions, how is the Grimsey Review 2 hoping to reverse those fortunes?
EG Editor Damian Wild talks to Bill Grimsey, ex-chief executive of Wickes and leader of the report, Jackie Sadek, chief operating office of Regeneration UK, and James Child, retail analyst at EG about the key takeaways from the Grimsey Review
The creation of a supportive environment for retail to work
Among the Grimsey Review’s top recommendations is the creation and implementation of a Town Centre Commission. A TCP is defined as an empowered organisation under strong and established leadership through the local authority for each town centre has a defined remit to build a 20-year vision for their borough.
Fragmented ownership and disunion of high street shops has contributed to the malaise and inertia affecting the retail landscape in town centres for many years and Grimsey hopes tha TCPs can create inclusive platforms for collaboration. The ability to create a support network for individual areas would have a great effect on its ability to become more than a retail-only led institution, says the report.
This evolution of the high street serves as a disruptive influence from the existing model of shops upon shops, but it also acts as an accelerant to new development and a new way of thinking.
“There is no point clinging to sentimental visions or the past – we need to look to the future – progress is too slow and the retail landscape is rapidly changing.”
Grimsey Report 2, July 2018
According to Radius Data Exchange one-third of all shopping centres in London have plans for residential development on top of them. In insolation, this is a fairly redundant statistic, but when you take that to a regional level we can see how that encouragement of increased footfall can breathe life into areas and create new polycentric locations surrounding key city areas. So people no longer commute in and out of areas but “live, work and play” in their own town centres, supporting local business and night-time economies.
This acceptance of the future must come with a change in past expectations.
Too much retail?
There should also be a clear recognition and acceptance that there is simply too much retail space in the UK.
Bricks and mortar retailing can no longer be the anchor for thriving high streets and town centres, according to the Grimsey Review. They need to be repopulated and re-fashioned as community hubs that include housing, mixed-use offers, incorporating leisure, as well as business space.
The challenge faced by bricks and mortar retail over the past five years has been evident. Using Radius Data Exchange, EG has analysed the state of the retail market to give the Grimsey Review a comprehensive understanding of how the sector has changed.
Retail take-up has slowed for a second consecutive year and fallen by more than 20% year-on-year in terms of physical number of deals completed, as retailers continue to adapt and diversify physical space. Take-up in the sector dropped by 18% to 21.6m sq ft in 2017 with over a quarter of that space coming from the food and beverage sector, indicating the relative strength of that particular sub-sector, which speaks volumes about the way that the fabric of physical retail has changed.
Along with the amount of physical space being taken by retailers decreasing, the way that they are operating their lease terms has also changed significantly. Average lease lengths have continued to contract as the average retail lease has moved inward from 8.7 years to 7.8 years since 2013, with an increased focus on flexibility and incentivises.
With less space being taken and retailers failing to commit long term, landlords have a right to feel a certain level of uneasiness. This trepidation and movement into a new era of retail and property dynamics needs fresh impetus and a clear and distinct vision.
The review underlines the importance of an empowered organisation willing to lead the direction of the high street at a local level, to benefit and compliment the needs of that area. And with that the recognition that there needs to be an honest and frank discussion about how much retail space is needed in an age when every one in five pounds is spent online.
Yet worryingly – although we know that the amount of space being taken by retailers in the UK has been in decline – when we take a look at where space has been taken, we see that there is still clear movement from central areas to out-of-town centres.
Out-of-town retail parks commanded almost 20% of take-up in 2017. The high street, by comparison, has seen its share of take-up fall from 57% to 50% in the five years since the first Grimsey Review.
Out-of-town menace?
The proliferation of retail parks and out-of-town shopping parks has been cited as one of the main disrupters in the goodwill to safeguard the high street, labelled by some as the antithesis of localism.
Cheaper rents, free parking, as well as the option for larger units, have all attracted many of the non-traditional big-box retailers to out-of-town destinations.
The review says there is a definite need to “review and evaluate the future use and relevance of out-of-town shopping parks” while bringing unwanted space back into the community through the Town Centre Commission Plan and “applying a Town Centre First Policy and calling for no further out-of-town development”.
Planning applications for new retail parks have dropped by 60% year-on-year, as developer interest cools after a record 2016, according to Radius Data Exchange.
In 2017 developers in the UK applied for a total of 13 new retail parks in the UK, a significant fall from the previous year’s 33, but slightly up on the 10-year average. As a result, permission rates for those new schemes has also plummeted by some 53% in terms of the amount of space (sq ft) getting the green light.
The Town Centre First Policy was implemented in March 2012 with the distinct goal of reducing this effect of sprawling retail destinations, as part of a drive to keep regeneration at the hub of community centres.
With real worries about the “death of the high street” and the demise of bricks and mortar retail at the turn of the decade, this was introduced to safeguard what could be built and where. However, as we look at the data we find that applications and development have accelerated rather than decelerated. However, look at the permission rates of those schemes and the lines begin to move inwards. So, while applications are increasing, the rates of permission for out-of-town schemes are falling. Maybe the NPPF/TCFP have finally exerted enough pressure on planners for them to begin to say no. According to Grimsey Review, however, that is not enough and more needs to be done to secure and safeguard investment into central areas.
To encourage retailers to think about opening physical space on the high street is part of the challenge. Offering, “30 minutes free parking in town centres” with a “nominal maximum for two hours of £1” goes some way to addressing the issue of expensive parking issue with locals – though perhaps not the issue of a lack of it, which for many is seen as the definitive reason for avoiding the high street.
The role of government and planning
The second portion of recommendations reflects on government’s role in the implementation of new high street policy – the key takeaway here being the need to replace business rates with an alternative type of tax. With rates being responsible in many ways for accelerating shop closures, the system needs a radical overhaul – if not an obliteration of its current form.
Most retailers that have closed multiple stores this year have cited business rates as one of biggest factors in respective failure – often eluding that they were the final nail in the coffin, ahead of property rental values, increasing prices due to the ailing pound post-Brexit and the rise of the national minimum wage. The alternative to business rates surely will be the greatest received recommendation from the review – which suggests that business rates are an “outdated tax that need a major overhaul”. The Grimsey Review suggests a replacement property, land, area or sales tax instead.
There should be incentives and penalties for landlords that leave properties empty for prolonged periods, as well as developers that land-bank. While introducing accountability through transparency of ownership, offering local authorities and landlords the ability to collectively engage with each other and the physical environment they work within.
The recommendations include:
- Giving the proposed Town Centre Commission Plan more power when it comes to dictating planning
- The ability to seek CPOs where needed, while establishing Community Improvement Districts to encourage all stakeholders involved on the high street to become engaged
- Creating flexible framework, which helps SMEs to launch with low risk
- Using s106 payments to fund the newly proposed TCCP.
Tackling long-term disengagement and vacancy, which has left many town centres and high streets stagnant, will continue to be the challenge in regeneration. So, what can be done and what is already happening on the ground?
Planning ahead
Using Radius Data Exchange, EG has looked at how there has already been some acute shifts in planning trends over the past few years.
Change of use applications for existing retail property has peaked at a five-year high to almost 3,000 separate applications, up by 34% year-on-year.
Within this, applications for retail to residential conversion are up by 8% year-on-year resulting in the proposal of an additional 12,674 homes from approximately 1,423 applications.
The South East, London and North West are the regions with this highest amount of change-of-use applications for residential space. When looking at the succession of those applications, we find 44% have been permitted, with only a 9% refusal rate.
Looking more broadly, there is a clear leader in terms of different use types that have been lodged, with 27% of applications for change of use being for retail to food & beverage.
Clear momentum from planners is needed to get the high street moving – but there seems to be a lack of urgency from a coherent body of leaders. Giving a TCP power to introduce fines or penalties to those who flout planning law, an overview of policy as and when it happens and making sure it fits with the overall cohesion of the area it serves will enable greater prosperity and action.
Where is the investment coming from?
The role that local councils have already played on the high street has been slowly changing.
What we have already seen over the past few years, and particularly in the post-referendum era, is an increased proliferation of council investment into commercial real estate. Access to cheap debt combined with low competition in a buyers’ market have given local authorities the scope to diversify their portfolios.
Council investment into commercial property in the UK shows no sign of slowing down and peaked at £1.5bn last year, according to Radius Data Exchange. This high means that since 2014 local authority spend across all property types has totalled more than £3.7bn. With investment in Q1 2018 already reaching £420m and double that of Q1 2017, this looks set to be another bumper year.
Councils have invested some £1.8bn into offices and £1.4bn into retail and leisure making them the preferred sectors of choice.
The investment levels seen in secondary or regional shopping centres should be a source of encouragement. It creates a platform for local authorities to take a vested interest in their assets, which in many cases will be town centre areas (or certainly within the area). Overspill of investment, increased footfall and the feelgood factor will serve to benefit those communities in the long term.
Retail park spend continues?
That level of spend from private investors and traditional REITs has continued to be hedged on out-of-town assets, following the relative slump of the prime shopping centre market from a lack of overseas buyers post-Brexit.
In terms of what is happening in out-of-town areas, this year we have seen the appetite for out-of-town asset investment begin to slow down. Across the UK £600m has been spend on retail parks, which is down by 50% from £1.2bn for the same period last year.
Uncertainty and a natural slowdown after a whirlwind few years in the retail sector have fuelled the change.
The recent spate of administrations and CVAs in the big-box sector (including Toys R Us, Mothercare and Carpetright) have increased vacancy rates in the short-term, increasing caution from investors. The economic ramifications of Brexit continue to have an effect of the market too, with overseas investors watching the currency markets and assessing the strength of the pound.
Despite the slowdown, with a steady H2 we could see volumes push close to last year’s total of £1.7bn.
So could we see a pinch point in the near future? Just how much will investors really spend on out-of-town assets when there are CVAs and store closures from so many historic brands? A more confident approach to central investment is needed to stoke the fires of regeneration.
Smarter tech: fighting inertia
The third and final set of recommendations in the Grimsey Review seek to identify the key areas of technology change.
The review recommends that BT and Virgin Media, the major beneficiaries of the £150m SuperConnected Cities funding between 2014 and 2016, need to offer a Town Digital Package to ensure ongoing digital transformation of the UK’s cities and towns. The provision of free public wi-fi is also suggested throughout the high street to increase the interest of flexible workers and attracting freelancers.
EG has looked at changing consumer habits and what that means for the high street – and the benefits of adopting new tech to entice people into central areas.
Recently we published a case study on Bird Street, W1, which has led a transformation in hopes of becoming the “world’s smartest street”, using Pavegen tiles to harness footfall energy and also collect data – prime examples of how the modern high street should be geared.
We also chaired a round table event at LREF exploring the needs of digital connectivity, and how this effects not only the retail landscape and more. Dealing with legacy infrastructure while implementing new technologies is often left to private investment but here lies a perfect example of how the proposed Town Centre Commission could influence decision making and speed of decision. Technology should really lay at the forefront of any change, enabling fast-moving progress to keep up with consumer needs and meet the expectations of locals.
So, how can we improve the high street?
There’s a lot more to come from the review itself but the overriding themes are clear to see. The report talks in great depth about the creation of a clear and succinct vision. Each town or high street should have its own Town Centre Commission, which by definition should work with stakeholders and neighbouring locations to share best practice and data to create 20-year visions for the future of that individual place.
A rethink on what the high street actually represents is also necessary, with a focus away from retail-led high streets, with the inclusion of community spaces, mixed-use destinations and continually evolving multi-purpose events. Towns must stop trying to compete with out-of-town shopping parks – they must create their own reason for communities to gather – being interesting and engaging and altogether, a compelling and great experience.
In addition, how do we encourage retailers back on to the high streets? Offer the right planning functionality and support for independents to flourish and use incentives and penalties on landlords to rid areas of vacant units to create a desirable trading location. And finally, the eradication of the existing business rates model, which has been attributed by so many for the cause of crisis that we have seen so far this year.
And finally, improve the streamlining of new technologies throughout the UK’s high streets. Use technology in ways that will benefit investors, in terms of data sharing efficiency and tools which enable greater understanding of what is happening in a particular destination. Work to create a diverse, and interesting environment, where locals want to visit, while introducing free wi-fi throughout to encourage freelance working and dwell time, and be increasingly flexible in the rollout of new ideas and equipment.
EG was a main data contributor to the Grimsey Review, supplying in-depth and complete analysis on the retail real estate market using Radius Data Exchange. To find out more about how Radius Data Exchange can help you, visit www.egi.co.uk/radiusdx or to speak to our specialist retail analyst, e-mail james.child@egi.co.uk.
