EMPTY SHOPS What does the future hold for town centres? Fo reword The image of empty shops is one of the most powerful indicators of the pressure on retailers to survive in the current trading conditions. The focus on the supply of retail property in our towns and cities has subsequently been highlighted by the appointment of Mary Portas by Government to undertake an independent review, now taking centre stage in seeking to understand and tackle the apparent demise of the high street. Clearly the aftermath of the recession created more savvy and cost conscious consumers resulting in a large number of independent and multiple retailers struggling to stay afloat or worse still going into administration. We have seen the virtual shopping experience continue to compete with physical stores as retailers look to the internet to grow sales and improve margins. Evidently the role of supermarkets continues to evolve, with a greater diversity of goods and services being offered from a larger number of locations and range of formats, both in and out-of-town. The most pertinent issue for those involved in trying to create town centres that remain vibrant places to visit is how unoccupied retail space can be brought back into use, or put to alternative uses compatible with the aspirations and environment of a specific location. This of course then raises the question over the potential demand for additional floor space and if so what this means for the future development pipeline. Ultimately though the challenge is how can we, as an industry continue to produce vibrant shopping destinations in light of the above factors. This research commissioned from Oxford Economics aims to provide further understanding of these issues, forecasting where the void rate is likely to settle in the coming years, attempting to draw conclusions on the relationship between empty property and rents for properties within proximity of an empty shop and establishing whether town centres have fared better or worse than shopping centres. In understanding cyclical and structural influences, such as the dominance of supermarkets, the resetting of leases, demographic movements and the increasing influence of the internet, the research identifies that the void rate will eventually settle at around 11% rather than the 6-7% seen on average before the turbulent economic conditions of 2007 onwards. With the range and complexity of issues that need tackling this is just part of a very welcome debate and one which BCSC hopes this research will contribute to. We look forward to engaging with our partners, including retailers, owners, investors and local and central government in establishing solutions to this very visible manifestation of town centre decline. Richard Akers BCSC President Managing Director - Retail Portfolio, Land Securities EMP TY SHOPS What does the future hold for town centres? Researched and written by: Tom Rogers and Neil Blake Oxford Economics London SE1 9PL t: 020 7803 1444 www.oxfordeconomics.com BCSC 1 Queen Anne’s Gate Westminster London SW1H 9BT t: 0207 227 4480 e: info@ bcsc. org.uk www. bcsc. org. uk ISBN number: 978 1 897958 51 3 © BCSC (British Council of Shopping Centres) 2011 Acknowledgements BCSC wishes to thank the members of the BCSC Asset Management Edward Cooke BCSC / Yvonne Court Cushman & Wakefield / Committee, BCSC Local Government and Finance Committee and the Ian Fletcher British Property Federation (BPF) / Maria Hadisutanto following members of the project steering group for their support British Retail Consortium (BRC) / Davinder Jhamat BCSC / throughout the study: James Anderson British Property Federation Richard Paxton PropInvest / Blake Penfold GL Hearn / (BPF) / Steve Belam The Oracle / Robin Bevan Javelin Group / Nigel Poad Insite AM / Mark Teale cbre. Martin Blackwell Association of Town Centre Management (ATCM) / The text of this publication may not be reproduced nor may talks or lectures based on material contained within the document be given without the written consent of BCSC. No responsibility for loss occasioned to any person acting or refraining from action as a result of the material included in this publication can be accepted by the authors or the publishers. Contents ExECuTIvE SuMMARY 1 1. INTRODuCTION 4 1.1 Methodology 5 2. LONG RuN ANALYSIS OF vOIDS 6 3. STRuCTuRAL DRIvERS OF HIGHER vOIDS 8 3.1 Rise of the supermarket and decline of the non-specialist retailer 9 3.2 The rise of the internet 10 3.3 Resetting of leases 10 3.4 Is there just too much space? 11 3.5 Demographics 12 4. LATEST DEvELOPMENTS AND LOCAL vARIATIONS 13 4.1 The impact of the recession on void rates 14 4.2 Have town centres fared better or worse than shopping centres? 15 4.3 Regional and local variations in voids 16 4.4 One more factor – size matters! 17 5. FINANCIAL IMPACT OF vOIDS 18 5.1 The impact of voids on rents in surrounding areas 19 5.2 The direct impact of voids on lost rent 20 6. PROJECTION FOR vOID RATES 21 6.1 Methodology 22 6.2 Findings 22 6.3 Forecast 23 7. CONCLuSIONS AND RECOMMENDATIONS 24 8. APPENDIx 26 8.1 Town centre vacancy rate 27 8.2 Shopping centre vacancy rate 29 Executive summary G Using data from a number of different providers the research finds evidence of a long run trend increase in retail voids, especially in-town centres. Town centre void rates rose slowly though steadily through the late 1990’s and into the last decade despite robust growth in consumer spending. The recession merely accelerated this trend. Shopping centres seem on the whole to be more synchronised with the economic cycle. G The report explores a number of drivers of a trend increase in town centre void rates. - The increased penetration of supermarket sales in both food and non-food areas has been accompanied by falls of 30% or more in the number of independent grocers, butchers, bakeries and fishmongers. Half of town centres now compete with five or more supermarkets within a two mile radius. - In addition, the growth of internet retailing (which now accounts for approximately 10% of retail sales) has clearly had an impact on retailers of non-food items This report analyses the behaviour such as clothing, media items and electrical goods. of retail void rates in the UK’s town There is data to suggest that households in some areas may have cancelled their internet subscription during centre high streets and in-town the recession, however the longer term trend towards shopping centres over the long run more internet retailing seems unlikely to slow. and during the current economic - Meanwhile industry experts point to the expansion of downturn. shopping centre space in the 1980s and the 25 year leases that were commonly agreed, as a factor likely to drive a ‘wave’ of voids in the coming years. Some of this space will of course be re-let, however, some centres particularly in poorer performing locations, are expected to struggle to replace tenants. - This is partly related to the provision of new retail space better suited to business and customer preferences, particularly in out-of-town locations. The Midlands and Wales have seen particularly rapid expansion in new retail space over the last 10 years, while London and the South West have seen much slower growth. - Regarding the issue of demographic change, on average pensioners spend around a third less on goods per week than do people of working age and in every region other than London the shares of population aged 50-64 and 65+ have increased noticeably over the past two decades. As such, parts of the country with the most rapidly aging populations are unlikely to be able to support the same square footage of retail space that they did when a greater proportion of residents were full-time workers. BCSC : EMPTY SHOPS What does the future hold for town centres? 1 G More recently the research finds that the recession G The report makes a projection for the void rate looking has had a substantial impact in driving up voids - town ahead. The analysis found a clear link between the pace centre retail void rates have increased by around 7% of consumer spending growth and voids, however there is during the last two years, from 8% to 15%. Although there also evidence to indicate both a long run increase over is less detailed evidence for shopping centres, it is clear the 1995-2010 period, and an acceleration of this trend that there has been a substantial impact in shopping some time around 2006-7, which in all likelihood centres also. corresponds with the growth of internet sales. G Looking at the current dispersion of void rates around G Looking ahead, three years of weak growth in overall the country, it seems that at the regional level, with the consumer spending is expected, thanks to a weak labour exception of one or two regions, void rates for shopping market, the impact of public spending cuts, and increases centres and town centres do not vary by an especially in the cost of living. As spending growth recovers in large degree. Variations seem to be greater within earnest, from 2014 onwards, this will help void rates to regions though. edge down slightly from the 13-14% as anticipated to be seen in 2012. G The research also finds that smaller towns have tended to keep town centre voids lower than larger ones, possibly G On a positive, according to the projection a 1% increase as a result of a more concentrated core retail centre. in real consumer spending reduces the void rate by 1.1%, The very largest cities seem to benefit from their size, and a fall in the unemployment rate of 1% lowers the acting as retail destinations for surrounding areas.