The Grimsey Review 2

MARKET DATA AND EVIDENCE FOR THE GRIMSEY REVIEW 2

(PUBLISHED JULY 2018) FULL VERSION

A review of economic, retail and property market data across Great Britain relevant to the function and performance of town centres.

AUTHOR – MATTHEW HOPKINSON WWW.DIDOBI.COM

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 Contents

03 Introduction

04 Economic data

09 Physical premises stock

14 The changing face of our town centres

16 Vacancy rates

18 Town health indices

19 Occupational costs and lease

23 Planning

27 Investment activity

30 Footfall

31 Consumer trends

38 Social changes

42 Conclusions

43 Acknowledgements

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 1. Introduction

orecasting impact even with good data regenerating the economy locally. (https://www. is not an easy thing to do when you theguardian.com/commentisfree/2018/jan/31/ have no idea where the revolution might preston-hit-rock-bottom-took-back-control ) go. It is reported that 90% of the world’s data was created in the last two years The reality is that every town and city in the Falone. For example, in one minute the following country has developed and evolved over history activity takes place Amazon makes $260,000 of as a shopping destination and that is perhaps sales, 4.14 million YouTube videos are watched, why Napoleon famously called the English ‘a 3.5million text messages are sent, 3.6million nation of shopkeepers’. With changes to how Google searches, 47,000 Instagram posts, 46,000 and where we shop be it many years ago with Uber journeys. The vast numbers which seem the advent of supermarkets where the first one unbelievable go on. Only recently, Alibaba on (The London Co-Operative Society) opened China Singles Day saw 357,000 transactions on the 12th January 1948 in Manor Park, East a SECOND!! London (Source MoneyWeek 12/01/2015), or the opening of the first out of town shopping centre How many envisaged how smartphones would in 1976 (Brent Cross) or large out of town retail change our world and if you are sitting there shopping parks such as Fosse Park near Leicester thinking it hasn’t changed yours then it has which opened in 1989 with 12 stores and now changed your family’s, your staff and your has 39 with another 12 on the way from a £135m customers. It was only 10 years ago that the extension or the first e-commerce transaction first iPhone was launched, the first of the smart- on 11th August 1994, when Dan Kohn sold a CD phones. In 2007 they sold 1.4 million and in of Sting’s Ten Summoner’s Talesalbum (Source 2016 they sold just under 212 million. The data FastCompany.com). The internet went live to the creation from these handheld super computers world on 6th August 1991. grows by the day as new software and engagement tools are created be it Pokemon Go (www. All of these events have created change so there pokemongo.com) to Snapchat (www.snapchat. is no one cause but revolution in the form and com) to bespoke ‘place’ apps such as www.ex- function of places driven by changing consumer ploregloucestershire.co.uk/ or market place apps behaviour enabled through technology and a such as Bump (www.sobump.com) and Depop connected global economy. (www.depop.com)! With regards bricks and mortar locations The form and function of cities and towns alone a research paper in June 2014 by Geofu- across the world has had to change as a result but tures stated “Global statistics also suggest a with all things in life their composition, identity detrimental effect of large retail developments and ability to change have varied and evolved if built within a 5km proximity to town centres; in many different ways. There is however one ……. When considering the types of large retail golden thread that connects them all which is as separate entities, the hypermarkets or super- that they are communities of people who create stores (for example Tesco Extra or the larger economic value to the place they reside. The ASDA Walmart stores) are the contemporary rep- level of economic health determines the volume lication of the 1950s town centre offer, serving and value of the people that occupy it and it is multiple goods and services under one roof to the from this money flows into the local economy convenience-culture expectations of much of our and creates the need for shops, bars, restau- society. Whilst there have been past studies sug- rants, cinemas, clubs and other consumer facing gesting a beneficial relationship to town centres businesses. In the city of Preston in Lancashire from increased footfall of extremely proximate they have gone even further by introducing a edge-of-centre developments, breathing life and form of Guerrilla Localism where public spend is employment in towns, it may be hard to compete kept as close to home as possible with the hope of with the economies of scale on offer."

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 2. Economic data

A. Costs

Since 2013 the costs of running shops has all contributed to a significant operating cost for increased significantly with the Brexit vote retailers. In 2017 costs rose by 2.9% compared to increasing this further. Inflation, exchange rates, the previous year (Source Retail Economics). Retail wage costs, utility costs, transport costs and sales however increased by 1.9%, their lowest additional levy’s such as the Apprentice Levy have annual growth rate since 2013 (Source ONS)

Figure 1. Retail Cost Base Index 2017 (Source Retail Economics)

Figure 2. Breakdown of Retailer operating costs in 2017 (Source Retail Economics)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 4 B. Sales

From 2013 to 2017 the annual value of retail During the same period of increases in the sales in Great Britain grew from £360,107 volume and value of retail sales the prices million to £405,867 million which is an increase dropped creating further issues for retailers. of 12.7% (Source Statista).

Figure 3. Quarterly growth for the quantity bought and amount spent for all retailing, seasonally adjusted and the non-seasonally adjusted store price (Source ONS)

Internet sales as a proportion of retail sales increased from 10.4% in 2013 to 16.2% (monthly average – source ONS). In real terms this is an increase of 55.8%.

Figure 4. Internet sales as a proportion of all retailing (Source ONS)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 5 Retail sales growth by sector shows significant operating the business and therefore creating variances between food and health & beauty and more pressures on already tight profit margins. traditional comparison goods. The rate of growth Traditional comparison goods shopping of these ‘traditional products’ is less than half increasingly no longer takes place in shops but that of health and beauty but more importantly primarily online with the store acting as the is below the inflationary costs associated with showroom and in some cases delivery centre.

Figure 5. Retail sales growth by sector (Source Retail Economics)

C. Income and forecasts

The consumer price index (CPI) measures that prices will start to fall thus decreasing changes in the price level of market basket of inflationary pressures on household incomes. consumer goods and services purchased by This is good for creating more spend for goods households. As figure 6 illustrates, it is forecast and services.

Figure 6. Consumer Price Index forecast (Source Retail Economics)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 6 Wage growth is a key measure for determining spending. Figure 7, however, illustrates that future spend on goods and services. Wage whilst this is positive news from a negative 2017 growth is forecast to outstrip inflation which that this change is c.1% which is less than half of in turn will improve the level of consumer what it was in 2016.

Figure 7. Real wage growth forecast (Source Retail Economics)

Figure 8. Consumer spending forecast (Source Retail Economics)

The Asda income tracker is a very good net income and net income minus basic spend. The benchmark for consumer disposable income. It is average spending power has risen from £158 in based on total household income minus taxes = 2013 to £198 per week at the beginning of 2018.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 7 Figure 9. Asda income tracker (Source Asda/CEBR)

D. Taxation

Figure 10 illustrates the significance of burden is more than three times greater than business rates (tax on property occupation) as a that of corporation tax (a tax on profits). In light proportion of the overall tax burden for retailers of the data above this gap between business rates with stores. Of note is that the business rates and corporation tax will continue to widen.

Figure 10. Breakdown of taxes (Source: HM Treasury, Retail Economics analysis)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 8 3. Stock

There are over 1,000 cities and towns across the UK with a population of 1,300 people or more (Source The Geographist). The Local Data Company (LDC) who physically survey towns across Great Britain track 1,048 towns and cities. In addition to these places there are approximately 1,300 retail and leisure parks (3+units) and 850 shopping centres (10+ units). Overall the LDC tracks over 550,000 retail and leisure properties across Great Britain. Of these 65% are independents (fascia with less than 5 shops).

Chain stores

From 2013 to 2017 LDC data shows that 18% of towns lost 10% or more of their chain retailers. The towns who lost the most at over one in five (20%+) of their chain stores include Ilkeston, East Dereham, Dewsbury, Colwyn Bay, Dudley, Bishop Auckland and Ayr.

25% of towns saw a rise in chain stores in this period according to LDC. 4% of these towns saw a growth of 10% or more. Examples include Wembley, Greenwich, Marlow, Beaconsfield, Sidmouth, Brixton and Bracknell. The overall trend, however, is that chain retailers are exiting town centres at their fastest rate. Data from 2017 compiled for PwC by LDC show that chain retailers have shut up stores at their fastest rate since 2010 with a net loss of 1,700 shops in the top 500 town centres.

Figure 11. Openings and closures of chain retailers in top 500 GB Towns (Source LDC/Guardian)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 9 Lisa Hooker, consumer markets leader at PwC, said: “2017 was tough for the British retail industry, particularly the second half of the year. We saw volatility from month to month and across di!erent sectors as wage growth failed to keep up with inflation, forcing many shoppers to think more carefully about their spending habits.” The problems have continued into the first quarter of 2018, which PwC said was “the toughest first quarter since the last recession in 2009-10”.

Independents

From 2013-17 41% of towns experienced a net loss in independent stores in their towns with 5% of towns experiencing a loss of one in ten (10%) of their independents according to LDC. Examples include Poole, Blackheath, Guildford, Clapham, Camden Town, Farnham and Letchworth.

55% of towns experienced an increase in the number of independents in their towns with 16% seeing an increase of 10% or more. Examples include Solihull, Paignton, Harrow, Pontypool, Paisley, Dudley, Nelson, Birmingham, Belper, Kidderminster and Margate.

Overall

In 5 years a total of 2,214 (-0.89%) occupied retail and leisure units have been lost from 1,048 ‘towns’ with 50 or more units LDC data shows. This equates to 2 shops per town.

40 towns have lost 10% or more of their occupied shops (maximum loss is 18% = Gateshead) Examples include Gateshead, Abergele, Salford, Raynes Park, Poole, Axminster and Kendal.

50 (5%) towns have experienced no change in their shop numbers. 450 (43%) towns experienced an increase in the number of occupied shops with 72 towns seeing growth of 10% or more. Examples include Pembroke, Sparkhill, Burford, Paignton, Colne, Denton, Paisley and Ashby de la Zouch.

5 year change by business type: 2013 – 2017 The last five years has seen the relentless decline of traditional shops that sell comparison goods. Products that by their label ‘comparison goods’ can easily and often more conveniently purchased online. These include bulky white goods, electronics, books and increasingly fashion and footwear. Nearly 9,000 stores of this type have shut up shop in the last five years and this equates to over 5% of the stock and the trend is continuing and if Q1 2018 is anything to go by then accelerating. Additional closures in this period include Toys ‘R’ Us, Maplin, East, New Look and Mothercare. According to the Centre for Retail Research the number of stores a!ected in the first quarter of 2018 has already reached 90% of the total for the whole of 2017. The largest number of closures on one day is still Woolworths who closed 812 stores in January 2009.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 0 Across Britain’s towns the number of shops opening has reduced by 11.4% since 2013 and the closure rate has increased by 1.1% (source LDC). The take up as ﬁgure 11 illustrates is as a result of growth in eating and drinking (co!ee) and not as a result of more traditional shops opening. The fundamental structure of Britain’s town centres has changed from goods transaction to one of consumption of food and experiential services including health and beauty.

Figure 12. Net change (%) in stores across GB 2013-17 (Source LDC)

Figure 13. Net change in stores across GB 2013-17 (Source LDC)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 1 The chart below illustrates that town centres have experienced a net loss of stores across all retail and leisure uses. It also shows how shopping centres have su!ered but it should be noted that this sector shows massive polarisation between the mega malls such as Westﬁeld London, Trinity Leeds, Liverpool One, Buchanan Galleries and St David’s Cardi! and other more challenged shopping centres such as the Ellesmere shopping centre (Manchester), the Con- course shopping centre (Skelmersdale) and the Dolphin shopping centre (Poole) who have vacancy rates above 20%.

Figure 14. Net change (%) in stores across GB 2013-17 by location type. (Source LDC)

Retail parks are the only location type that has seen strong growth in their number and the take up of retail and increasing leisure and service businesses. Data from EGi clearly shows the demand proﬁle in planning applications (market demand) and also the trend in planning permissions (Local Authority acceptance).

Figure 15. Applications for new space (sq ft) by location (Source EGi)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 2 Figure 16. Permissions for new space (sq ft) by location (Source EGi)

The net result has been a signiﬁcant increase in additional retail o!er out of town centres as shown by ﬁgure 17.

Figure 17. Net change in units 2013-17 across Great Britain (Source LDC)

2013 appears to be a pivotal year for a change in market demand and planning decisions with the balance moving in favour of our of town retail destinations. Figure 16 shows that this, in part, was as a result of a signiﬁcant increase in applications with 60% of applications in the last ten years coming in

Figure 18. Number of applications for brand new retail parks (Source EGi)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 3 4. The changing face of our town centres.

The number of and type of shops being in and eat-out facilities. The saturation of the occupied in our towns has continued to change discount market (pound shops) is also illustrated and at a greater velocity from the first Grimsey with a loss of 327 stores and will more closures Review in 2013. Figures 19 and 20 illustrate that forecasted. LDC’s latest report on the sector the traditional anchors of many town centres reported Discounters as having the biggest drop such as banks, clothing shops and pubs have in their Compound Annual Growth Rate (CAGR) been closing hundreds of outlets and in the case in 2017 to 2% from a five year period average of of banks nearly 2,500. Where these shops have 5.1%. Conversely, convenience stores showing been reoccupied they are being filled by healthy an increase of 1,185 stores since 2013 saw their and beauty businesses including nail salons, CAGR rise to 4.9% from their five year average tattoo parlours and barbers – experiences! of 3.2%. Supermarkets saw a slight drop in their CAGR to 0.7% from a five year average of 1.2%. The change in food delivery is also reflected in The rest for space has ended and supermarkets these numbers where fast food delivery outlets are now seeking to optimise what space they have have been replaced by the likes of Just Eat, through acquisition (Sainsbury’s Argos) as well as Deliveroo and Uber Eats as alternative business partnerships with high street brands such as Next, models leveraging existing restaurants with eat- Dixons Carphone, Arcadia, Timpson and Costa.

BUSINESS TYPE Net change in stores 2013-17

Tobacconists/e-cigarettes 2,090

Barbers 2,066

Beauty salons 1,599

Cafe & tearoom (independents) 1,384

Convenience stores 1,185

Hair & beauty salons 986

Coffee shops (chains) 981

Nail salons 944

Restaurants & bars 941

Takeaway food 902

Figure 19. Top 10 business types opening 2013-17 (Source LDC)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 4 BUSINESS TYPE Net change in stores 2013-17

Banks & other ﬁnancial institutions -2,405

Pubs & inns -1,931

Clothes - women -1,588

Newsagents -1,357

Travel agents -1,229

Post Ofﬁce services -1,087

Shoe shops -861

Chemists / toiletries -698

Fashion shops -698

Cheque cashing -686

Figure 20. Top 10 business types closing 2013-17 (Source LDC)

The overall presence by stores across Great entertainment with traditional shops reducing Britain is detailed in figure 21. It shows that dramatically as a result of changing spending over a third of what we see on our ‘high habits and the growth of online as the most streets’ is about the consumption of food and convenient channel to shop for such goods.

Figure 21. Largest store occupiers across Great Britain as at February 2018 (Source LDC)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 5 5. Vacancy rates

Vacancy rates are a key indicator of economic health in an area be it retail, office or industrial. The vacancy rate and the persistence of vacancy are the two key data attributes to consider.

Overall vacancy rates have decreased since 2013 from 12.3% to 11.1%. This rate is driven by the change in vacant shops (Retail) and food and beverage/ entertainment outlets (Leisure). Retail vacancy peaked in 2012 at 14.6% so has improved by 2.3%. Leisure vacancy, however, has increased from 7.5% to 7.9% but a marginal improvement from its peak of 8.2% in 2016. Both numbers illustrate an over-supply of space – too many stores. As at February 2018 LDC recorded that 49,203 retail and leisure premises lay empty. By way of example, Sheffield has 913 retail and leisure units according to LDC so this number equates to over 53 Sheffields having no occupied shops!

Figure 22. Vacancy rates in top 650 GB town centres (Source LDC)

16.0% 15.1% 14.0% 14.5%

12.0% 12.3% 11.9% 11.1% 10.0%

8.0% 6.7% 6.0% 5.1% 5.9% Vacancy (%) Vacancy 4.0%

2.0%

0.0% ENGLAND SCOTLAND WALES

Town centres Retail parks Shopping centres

Figure 23. 2017 vacancy rates by location and country (Source LDC)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 6 The persistence of vacancy measures the duration that a shop unit remains empty (no trading business) and through LDC’s 6 monthly updates one can get a very clear as to the volume and duration of vacancy up and down the country. Short term vacancy can be a good thing and be as a result of redevelopment, growth and innovation. Shops that have remained vacant for more than two years normally indicate decline, malaise and wider issues within the location that sit. Figure 19 illustrates this well and shows a signiﬁcant variance, in some cases three times greater, between the north of the country and the south in terms of the volume of vacancy and its duration. Take for example the North West where 5.7% of all stores have been vacant for more than three years – this is redundant stock and needs repurposing.

Figure 24. Persistence of vacancy by region as at June 2017 (Source LDC)

Figure 25. Persistence of vacancy by location type as at June 2017 (Source LDC)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 7 6. Health Indices

In 2013 LDC partnered with Morgan Stanley tracked over time. Figure 26 illustrates how the to create a health index that brought together location types have changed over time. Of note multiple data points in order to deliver an is that small (convenience led and less than indexed score against ﬁve main asset types (see 200 shops) towns are not changing whilst the ﬁgure 26). The index brings together population large towns and cities are strengthening as are catchment, spend, vacancy rates, persistence of shopping centres yet retail parks until now have vacancy, anchor retailers, diversity of o!er and tended to be shopping focussed and therefore not other data that are an attractor or detractor to scored as well as towns and shopping centres. a place in order that places can be indexed and This is changing as this report has shown!

Small towns 2.1 H1 2015 2.1 2.1 H1 2016 3.7 Medium towns H1 2017 4.1 4.1 Large towns 14.4 14.8 15.4 retail parks 1.8 1.8 1.9 Shopping centres 4.5 4.8 5.3

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 Average score per year

Figure 26. Average LDC Health index scores by location type (Source LDC)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 8 7. Occupational costs and leases

A. Rents Rents account for 18% of a retailer’s costs and have often been cited as a cause for closure as landlords seek to maximise their return. Rents also form the basis for business rates of which there will be more about this later.

Colliers International track average Zone A (the front/trading area of the shop) in prime locations (generally the centre of a town – its high street) and what their data shows is that since 2008 rents for every region bar two, Central London and Outer London, have fallen. Whilst rents in London have risen by an average of 66% since 2008 they have fallen in Wales and the North East by over 30% - see figure 27. The average rent in Outer London as at 2017 was £111.75 per square foot versus £63.60 per square foot in Wales. Excluding Central and Outer London the average Prime Zone A rent for all other regions was £77.73.

Figure 27. Indexed average prime Zone A rental change 2008-2017 (Source Colliers International)

The decrease in rents can impact both investor appetite to create ‘product’ (physical space) but also indicates a considerable drop off in demand for space. Figures 28 and 29 clearly illustrate this in the number of deals and square footage being transacted since 2013. James Childs from EGi reports that take up in the retail sector dropped by 21% to 21.6 million sq ft of which a quarter of this space coming from the food and beverage sector.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 1 9 Figure 28. Number of retail deals completed by year (Source EGi)

Figure 29. Retail take (sq ft) up by year (Source EGi)

During this period the data also shows that the length of leases is coming down. This creates greater flexibility but also at the same time greater uncertainty for investors with shorter and in some cases lower income streams. It requires a more proactive and partnership approach which is a good thing and hopefully leads to places being managed for the benefit of all and not just for the creation a lease transaction. For example, Next have 240 (45%) of their store leases coming up for renewal in the next three years according to Verdict.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 0 Figure 30. Average retail deal lease length (Source EGi)

The form and function of space is changing as the data clearly shows. The ability to change the format and size of space is increasingly important for retailers and leisure operators as they adjust to consumer and market trends. In this regard figure 31 indicates a potential issue for highs streets and their inability to change at the same rate as alternative locations such as shopping centres and retail parks. Whilst they are all very different in their origins and structure they all need the ability to change and adapt their store footprints. As retail parks become more destinational and less big box their footprints have reduced as it is more about co-location of many rather than a few big boxes.

Figure 31. Average size (Sq ft) of a store (Source EGi)

Whilst the High Street is more complex as a retail destination in terms of form, function and ownership the chart below illustrates that over a ﬁve year average it has the lowest rental levels. On average rents declined by 8% on the High

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 1 Figure 32. 5 year average rents (2013-17) by location type (Source EGi)

In addition to shops retailers have been very active in acquiring industrial space to service their logistics needs instore and online. With an increasing number of retailers having 25-50% of sales online and shortening fulﬁlment (delivery) times then an efficient and e!ective logistics infrastructure is critical to their business. In 2017 42% of John Lewis’ sales were reportedly online.

According to Kantar Worldpanel 20% of all clothing sales are online and they forecast this to rise to 25%. In Next’s latest sales results (March 2018) they reported retail sales (store) down 7.9% whilst online was up 9.2%. This trend is widespread throughout the retail sector and increases the need to better understand the role of physical retail in the customer’s sales journey and as such this varies based on retailer and customer base. No one size ﬁts all!

Figure 33. Percentage of industrial take-up in 2017 by tenant sector (Source EGi)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 2 8. Planning

Planning data is key to understand changes to varies up and down the country. According to existing stock alongside new developments. James Childs of EGi change if use applications Beyond retail and leisure uses it is more im- for existing property peaked at a five year high portant than ever to understand planning for in 2017 with nearly 3,000 applications (see figure future demand such as offices, hotels, academic 30). Retail to complete residential conversion institutions, residential housing and medical are up 8% year on year and this will bring an facilities. additional 12,674 residential units from 1,423 applications to the market. From 2013 to 2017 In the previous review recommendation the number of such applications has increased covered change of use on buildings. Whilst the from 57 in 2013 to 451 in 2017 which is nearly an opportunities, benefits and willingness to do so 800% increase.

Figure 34. Number of applications for retail change of use (Source EGi)

Applications for brand new retail parks has cant fall from the previous year’s total of 33, but dropped 60% year on year, as developer interest slightly up on the ten-year average. As a result cools after a record 2016, according to EG data. permission rates for these new schemes has also In 2017 developers in the UK applied for a total plummeted some 53% in terms of the amount of of 13 brand new retail parks in the UK, a signiﬁ- space (sq ft) getting the green-light

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 3 Figure 35. Number of applications for brand new out of town schemes (>50,000 sq ft + or >3 units) (Source EGi)

The EGi data also shows that since 2013 the ﬂourished but appears to have now peaked as development appetite for town centres has shown in ﬁgure 36. plummeted whilst up until 2016 out of town has

Figure 36. Permissions for new space (sq ft) by location (Source EGi)

Since 2016 it appears that the appetite for new question of how this level of investment can be retail schemes has peaked as seen in ﬁgure 37. applied to the redevelopment and repurposing With liquidity still remaining in the market and of our town and city centres. a strong level of investment appetite it begs the

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 4 Figure 37. Permissions for brand new schemes by type (Source EGi)

Further analysis of space applied for from the remainder of the country some way below 2007-2017 and the number of retail and leisure their levels. Unsurprisingly London (heavily premises within that region shows the West developed) and North East (smallest population) Midlands as having the highest additional space have the lowest activity in this regard. requirements followed by the South East with

Figure 38. Space applied for (sq ft) 2007-17 and existing retail and leisure stock (units) ratio (Source EGi/LDC/Didobi)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 5 The current focus of development in the another example where a 175,000 sq ft Leisure retail and leisure sectors appears to have moved extension is being built. Recent (2017) redevelop- from new sites to the extension of existing sites ment openings include Westgate, Oxford (800,000 and the creation of mega malls. Cushman and sq ft) and the Lexicon, Bracknell (580,000 sq Wakefield report that of new space in shopping ft). Others in the pipeline include Brent Cross centres 52% was extensions of the 1.7 million extension(600k sq ft), Intu Watford (400k sq ft), sq ft delivered in 2017. The recent extension to Intu Broadmarsh redevelopment(820,000 sq ft) Westfield London which added 740,000 sq ft and Ashford Designer Outlet (100k sq ft). Based (+39%) is a good example and makes it the largest on planning data supplied by EGi this is likely to shopping centre in Europe. Intu Lakeside is change back to new space in 2021 – see figure 36.

Figure 39. Proposed new space vs. Extensions % (Source EGi)

There remains a large number (39) of out of new out of town scheme is Rushden Lakes in town schemes in the pipeline which may or may Northamptonshire which opened in July 2017 not face challenges. A recent example of a large (phase 1 is 230,000 sq ft).

REGION NUMBER SIZE (SQ FT Scotland 6 432,000 South East 6 524,300 South West 6 765,000 Yorkshire & The Humber 6 559,500 North West 5 465,000 West Midlands 4 448,000 East Midlands 3 388,000 East of England 2 152,500 London 1 147,000

Figure 40. Proposed out of town schemes (Source EGi)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 6 9. Investment activity

Figure 41 illustrates how appetite for retail property as an investment class has showed. Whilst interest rates have remained low much of the investment has focused in London and the South East with foreign funding being a big driver on the larger transactions. Many investors have shied away from the non- prime areas but there are notable exception such as NewRiver REIT who have acquired secondary assets, rebased rents and invested in their assets to create a credible return. Not all have such appetite which has led councils to take control of many assets as the council investment levels below show.

Figure 41. Transaction volumes by asset type (Source Property Data)

As returns have reduced (ﬁgure 42 ) investors have sought alternative asset classes with higher returns. The average of returns for retail property have more than halved since their peak in 2014 at nearly 14%. Forecasts also indicate a further decline which will place even more onus on public money to create change in our towns and cities. Within these numbers there are major extremes between super prime assets owned by the large property companies and shopping centres which have defaulted and now rest in the hands of the banks and might have more than half of their asset lying empty. The returns being found in industrial and logistics assets is the current market focus but again this will no doubt create oversupply especially as and when retail park big boxes cease to be a desired location for retailers.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 7 Figure 42. Total investment returns (Source MSCI/Colliers)

Figure 43. Investor consensus forecasts by sector (Source IPF)

Council investment in real estate

Since 2015 council appetite to invest in real estate has increased from virtually nothing to over £12,000,000 in some years. The most active councils in terms of the number of transactions have been Surrey County Council (9), Nottingham City Council (8) and Spelthorne Borough Council, Portsmouth City Council and the London Borough of Bromley having 7 transactions each. The consensus is that this is happening to help councils derive future income at a time when their borrowing costs are at an all-time low and with sale prices down due to uncertainty in the market regarding the future of physical retail especially in challenged town centres. The exposure to and the ability to manage these assets as a public body with public money has been expressed as a concern by some when some of the private investment companies have been exiting this market.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 8 Figure 44. All council investment vs. all investment into U.K. commercial real estate (Source

Figure 45. Council Investment into respective property sectors 2014-17 (Source EGi)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 2 9 10. Footfall

There are a number of footfall statistics but not a mirror of sales reality especially when published which are based on di!erent the role of shops has moved to showrooming in locations, di!erent methodologies and analysis many cases. Springboard data for town centres but it is true to say that whilst the UK shows a 17% reduction of footfall in the last ten population has grown by c.0.7% per year the years. No surprise with out of town retailing, number of people visiting high streets up and non-food retailing by the supermarkets and down the country has fallen as ﬁgures 46 and online sales increasingly tenfold in the same 47 illustrate. Figure 46 relates to instore footfall period. Footfall for towns needs to be and ﬁgure 47 external (on the street) footfall. understood in context and relative to the With the growth of retail parks it is not economic value it brings. The rise in music surprising to see footfall moving to these new festivals and concerts illustrates that where the locations especially as they increase in size and right environment is created people will come o!er. The acid test, however, is where sales are and people will spend. Only by curating your occurring as footfall is an indicator of potential o!er and experiences can you achieve this.

Figure 46. Retail Trafﬁc Index 2014-17 year on year (Source Ipsos Retail Performance)

Figure 47. Footfall trends by location type (Source Springboard)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 0 11. Consumer trends

The UK consumer is one of the most advanced in terms of the adoption of multi-channel retailing. Since 1973 the British public were receiving the Argos catalogue (figure 43) and from 1988 the Next catalogue came into being. As such the British shopper has always purchased across multiple channels so it is no surprise in a small densely populated country with fast and increasingly cheap technology that the UK is significantly ahead of other countries in terms of internet purchases. The UK’s Online share of Retail Trade being 17.8% is double that of the Europe average which stands at 8.8% (Source CACI). There are a number of predictions for the growth of online retail sales but the general consensus is that it will peak at around 30%. As such it still has some way to go and the level of online sales by retailer will vary significantly with two current extremes being Primark (0% online) and John Lewis (42% online).

Figure 48. Argos catalogue 1973

The role of the store and data to evidence this is one that receives much attention but the consensus of opinion (and data where available) is that physical stores have an important role to play in the much more complex customer journey (figure 44). CACI forecast that UK Comparison Goods spend will rise from £223bn in 2017 to £330bn by 2026 of which 69% will be offline (in store) and 31% online. The online figure includes click and collect and showrooming which are a physical store function. CACI research shows that 85% of spend touches a physical store and that over 30% of online spend touches a store. The role of the many stores is therefore an important one but the form and function of the store needs to continue to evolve in order to stay relevant to this multi-approach customer journey. A good example is seen in the CACI research which shows that online purchases are returned at a rate five times greater than store purchases. In clothing and fashion this return rate can be as high as 40% which is a significant problem for retailers.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 1 Figure 49. Shopper path to purchase (Source CACI)

The rate of growth of online spend is understandably much faster than o! line (127% versus 28%) as shoppers seek convenience in a time poor world where experiences trump traditional goods transacting. Further impact is likely to be seen which could have wide ranging implications for certain sectors. The most topical one is if FMCG brands chose to go direct to consumers for everyday products such as toothpaste, breakfast cereals, shampoo, baked beans etc which would have a major impact on the supermarket and convenience stores sectors of which there are thousands of stores providing this service. Increasingly online players such as Amazon are encouraging consumers towards ‘Subscribe and save’ services for daily essentials.

With many families having both parents working then time to shop has reduced significantly as well as the time to socialise with family and friends as many people work increasingly long hours. The UK has the highest working hours in Europe at 42 hours a week versus Denmark, for example, at 37 hours per week. With increasing automation of work then this might change dramatically with a three or four day week being the norm. A Centre for Cities report in January 2018 reported that by 2030 20% of jobs will be lost to automation which equates to 3.6 million jobs in total. For example Mansfield, Sunderland, Wakefield, Stoke, Doncaster, Blackburn, Northampton, Dundee, Huddersfield and Telford are all forecast to lose more than 25% of their jobs by 2030. This will have a significant impact for their local economies and the form and function of those places.

Shopping journies have become more complex in purpose and ﬁgure 45 illustrates this clearly where a purpose might be threefold so the ‘place’ needs to be clear as to which service it is o!ering. This links back to geography and transport links as well as the recent development of places be it as ‘community shopping centres’ or megamalls where entertainment and experience is key.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 2 Figure 50. Shopper missions (Source CACI)

The time and money spent by location based on its function in the shopper’s mind is critical to understand. Whilst footfall might be down it does not mean that levels of sales spend are not rising but that the consumer takes fewer journies and is very focussed on what and how they will spend when they take them. The signiﬁcant rise is eating out is testament to this and the critical importance of a food and beverage (F&B) o!er in shopping centres where in many cases one in three of the units are F&B. Figure 51 clearly illustrates this with regional malls taking the lion’s share of time, spend and multi-channel engagement through click and collect. With increasing urbanisation and reducing car ownership the number for retail parks and shopping parks are likely to decline which will make them the more marginal locations of the future where 50% might not be viable in the next 1 ten to twenty years.

Figure 51. UK average shopper mission spend and duration by location type (Source CACI)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 3 12. Social Changes

Urbanisation of populations is a global phenom- mean that our towns and cities are the place that enon and will continue especially with ageing those on the edge of society end up on the streets populations who increasingly rely on services of. Figure 52 clearly illustrates the rise in rough and support networks which are best provided sleeping in our towns and cities with London and for in towns and cities. Wider social change is the South East being signiﬁcantly higher both in ongoing due to a multitude of factors but this can volume and trajectory than the rest of the country.

Figure 52. Rough sleeping by region (Source Homeless Link)

Figure 53. Local authorities with the highest levels of rough sleeping in 2017 (Source Homeless Link)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 4 Figure 54. Levels of rough sleeping 2017 – Westminster, Leeds, Birmingham and Manchester (Source Homeless Link)

A further key economic indicator of how • Health deprivation and Disability places might function and how strong their • Education Skills and Training local economies are the Indices of Multiple • Barriers to Housing and Services Deprivation that exist for England, Scotland • Crime and Wales (see below). The Index of Multiple • Living Environment Deprivation is a government qualitative study of deprived areas. The ﬁrst study (released in 2007) Understanding such data is key to being able covers seven aspects of deprivation. The statis- to manage change within the economic tics described by the Neighbourhood realities that many local places face. This in turn determines the level of appetite of private Renewal Unit are: sector investment which ultimately results in a • Income greater burden for local authorities in the more • Employment deprived areas.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 5 Figure 55. Distribution of English indices of multiple deprivation (Source ONS)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 6 Figure 56. Distribution of Welsh indices of multiple deprivation (Source ONS)

Figure 57. Extract of central belt Scottish Index of Multiple Deprivation (Source Scottish Government)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 7 13. Business improvement districts (BIDs)

Business Improvement Districts [BIDs] are business-led and business funded bodies, formed and democratically elected to improve their commercial district. From their start in the Ontario, where the Bloor West Village Business Improvement Association (BIA) was founded in 1970 as the first of its kind in the world, to the United Kingdom, where Kingston BID started in 2005, BIDs have grown in number and there are now nearly 300 (see figure 49) across the British Isles. There are a variety of BIDS in terms of size and function as illustrated by figure 50. Bids charge a percentage (up to 2% typically) of an occupier’s business rate (small businesses are exempt) and for some large retailers the cost across their portfolio can add up to £1,000,000 to their costs so increasingly retailers have a less favourable view of this additional cost burden.

Figure 58. BID growth 2010 – 2017 (Source British BIDs)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 8 JANUARY JANUARY INCREASE 2013 2018

Numbers of retail and leisure 117 237 102.56% BIDs on the high street in the UK

Total income and £49,437,87 £87,848,311 77.69% investment

Figure 59. Change in BID numbers and income 2013-2018 (Source British BIDS)

TYPES OF BID IN THE BRITISH ISLES NUMBERS OF BIDS INCLUDING IRELAND

Town Centre 237

Industrial 29

Tourism 5

Destination 1

Commercial 5

Leisure 3

Area 2

Food & Drink 1

Flood Defence 1

Developing BIDs 27

Figure 60. BIDs by type as at 2017 (Source British BIDs)

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 3 9 The regional spread of BIDs in the British Isles shows a focus on two large cities it is also clear that there is regional diversity, with 175 BIDs in England outside the London and Birmingham conurbations. Bristol has six BIDs, Edinburgh has four and Liverpool and Sheffield both have two.

BID LOCATIONS 2017 NUMBERS

N.Ireland 6

Scotland 39

Wales 12

London 62

Birmingham 12

Figure 61. BID locations 2017 (Source British BIDs)

On average BIDs comprise of 408 businesses with an average business rate levy income of £255,000 (Source British BIDS). 96 BIDS have a levy income of under £200,000, 94 have an income of between £200,000 to £500,000, 33 have an income of between £500,000 and £1,000,000, 13 have an income of between £1,000,000 and £2,000,000 with one BID having an income of over £2,000,000 at £3,979,000. The total investment in High Street BIDS as at January 2018 amounted to £114,202,804 (the levy and additional services sold). The contribution by retailers varies but in many cases retailers with a large number of stores in BID locations might be contributing up to £1,000,000 towards BIDs each year. Increasingly retailers appear to be voting against BIDs due to the wider challenges they face. For example, Bristol Bedminster has just lost its BID as it was reported that Asda did not support it and other retailers vote against BIDs on principle. There are 11 town centre BIDS in England with an income below £100k. Six are in small market towns (Morecambe, Otley, Tavistock, Wimborne, Penrith and Ulverston) and four are in neighbourhoods of big cities (London New Addington, Bristol Gloucester Road, Bristol Clifton Village and Bristol Bedminster).

Since 2013 there have been 107 ‘High Street’ BIDs with renewal ballots (re-elec- tion). The average turnout was 47.8% and of these 107 ﬁve failed to be -re-elected. Every year since 2013 thirty new BIDs have come into being with a number being supported by the Government’s BID loan fund (Bb MCCLG BID Loan Fund). The BID Loan Fund is an initiative funded by The Ministry of Housing, Communities and Local Government to assist with the development of new BIDs in town and city centres in England. To date, 24 loans totalling £782,135 have been granted. The

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 4 0 scheme is administered on behalf of MHCLG by British BIDs. The minimum loan to any location is £10,000 and the maximum £50,000. In addition to this a British BIDS Local Government loan fund has been set up to provide loans to BIDS at a local level. Uxbridge BID is the ﬁrst to receive such funding.

The relationship between BIDs and local authorities varies which is important to note as a BID might be providing an enhanced or reintroducing a service that the local authority used to provide. This might include refuse collection, parking, way marking, additional security in the form of ‘ambassadors’ or in some case Police Officers. In a survey by British BIDS in 2017 only 81% of respondents reported local authority representation on their Board. There has been a recent rise, and no doubt willingness from local authorities due to budget cuts, for BIDs to take on some local authority non-statutory services. At present 5% of BIDs have taken on some local authority non-statutory services such as street cleaning, graffito removal, public toilets, Christmas lights, hanging baskets and marketing the area through events and promotions.

BIDs have had many successes, especially in large cities where budgets are much higher, but the role of the BID is increasingly being challenged by the retailer levy payers due to the increasing costs they all face and of course with the recent Business Rates review many might see a further increase in levy rates but also some more marginal BIDs such as Morecambe might become untenable due to a reduction in BID levy income due to a reduction in business rates in their area. To ensure success for all places, large and small, then the structure for such management needs to be much broader and include occupiers (retail, leisure, office and industrial), landlords, the local authority and associated services including policing, transport and residents. A combined approach would bring more investment, greater co-ordination and a multi-dimensional team approach to a very challenging task of managing economically successful and vibrant places for the communities that live, work and visit them.

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 4 1 14. Conclusions

A. Costs (+2.9%) for retailers are rising faster than P. BIDs, especially in the cities where budgets are sales growth (+1.9%) higher, have evidenced that a proactive and team B. Retail sales have risen by 12.7% in the last five led approach creates better places but this struc- years ture needs to be more inclusive of all stakeholders C. Retail internet sales have nearly doubled to 18% including local authorities, landlords, transport, and are likely to grow to 30% of all retail sales by education, healthcare, emergency services and 2030 the community they reside within – investment/ D. The UK has an oversupply of shops. Currently economic zone areas that encompasses everything 10% but based on current trends this is forecast to and not just business and not just retailers rise to 20% (c.100,000 shops) Q. Common methodologies and measurements of E. Chain retailers have shut more shops that they data are required across all towns to enable town have opened every year for the last five years in leaders to benchmark and seek advice and support town centres from peers and government F. Independent stores in town centres account for R. Physical stores remain a fundamental part of 65% of all stores and have grown and contracted the customer journey be it in research, showroom- since 2013 but in 2017 there was a net loss of 1,483 ing or fulfilment shops (-0.49%) S. Councils are increasingly investing public G. The number and occupation of retail parks has money in commercial real estate and acquiring increased every year since 2013 and currently there significant retail assets in their towns are over 1,400 retail parks T. The occupation of stores in town centres has H. Whilst vacancy rates have marginally improved moved from being comparison goods heavy to that to 11% from 12% the number of long term vacancy of services and food and beverage units is growing (c.14,000 shops have been vacant U. Traditional anchors of towns including banks, for more than three years) post offices and department stores have closed for I. New developments have added more shops to the good stock in the last five years but based on planning V. There is increasing social polarisation within applications this is forecast to slow significantly and between towns which is reflected by dispos- J. Footfall in town centres has decreased every year able income, deprivation, crime and rough sleeping since 2013 and in the last ten years has fallen by 17% W. Planning applications for out of town develop- K. Large cities are becoming increasingly ments have been five times greater than those for dominant as destinations in-town development L. Rents in the majority of towns have fallen in X. Footfall decline (-17% to date) in towns will the last five years (on average by 23% excluding only be arrested through creating town centres London) with increasing polarisation between which are safe, clean, beautiful and engage London and the rest of the country people through multi-dimensional o!ers that are M. The speed of change in rents and the complexi- dynamic and unique. ty of ascertaining a ‘passing rent’ is not aligned to Y. The lack of returns for retail property and the current business rates and therefore needs to increasing demands from tenants for capital change expenditure on assets will increase polarisation of N. Lease lengths have reduced significantly to an investment decisions where returns are achievable average length of 7 years and will continue to do leaving others to manage decline. so which will create increased churn (openings and closures) and greater uncertainty within the The ability to track change and impact on a place is investment community which will impact their critical if you are to have any chance of success and investment appetite. buy in from the stakeholders who will help deliver O. The urbanisation of populations, the reduction the plan. Objective, independent and current data in car ownership by the younger generations, the is key to this and must be a core part of a town’s reduction in retailer portfolios and the growth/de- vision, strategy and plan. The ability to capture, velopment of urban mega malls and smaller town collate and interpret the data at a local level and to shopping centres is likely to mean that 50% of the also benchmark to other places is what will deliver current retail park stock will become redundant a better outcome for our towns and cities. by 2035. “What gets measured gets done.”

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 4 2 Acknowledgements

The author would like to the thank the following people and organisations for supporting the data contribution to The Grimsey Review 2 report with their data and views.

Barnaby Oswald _ The Local Data Company Ronald Nyakairu _ The Local Data Company James Child _ EGi Richard Lim _ Retail Economics Alex McCulloch _ CACI Chris Turner _ British BIDs Paul Clement _ British BIDs Tim Denison _ Ipsos Diane Wehrle _ Springboard Richard Roberts _ Altus Mark Charlton _ Colliers International Malcolm Fraser _ The Fraser Review (2013) Phil Prentice _ Scotland’s Towns Partnership Chris Wade _ People & Places Jerry Schurder _ Gerald Eve David Lonsdale _ Scottish Retail Consortium John Parmiter _ Future High Streets Ian Fletcher _ British Property Federation Ed Cooke _ Revo Helen Dickinson _ British Retail Consortium Polly Barnﬁeld _ Maybe Kate Nicholls _ Association of Licenced Multiple Retailers Professor Paul Longley _ UCL Dr Jonathan Reynolds _ Oxford University Professor Alex Singleton _ Liverpool University Cathy Hart _ Loughborough University Professor Leigh Sparks _ Stirling University Dr Scott Orford _ Cardiff University

GRIMSEY REVIEW 2 _ DATA AND EVIDENCE 4 3 About the author

MATTHEW HOPKINSON is a Director and Co-Founder of Didobi and has over 20 year’s experience of working within market leading data businesses within the UK.

He is a well-respected and trusted commentator on UK retailing and its places. He is a regular con- tributor to national and trade media outlets including the BBC, FT, Sky, The Guardian, The Times, Daily Telegraph, The Scotsman, Retail Week, Drapers, Estates Gazette, Property Week and more niche publications such as The Baker, DIY Weekly and Boughton’s Coffee House. In 2013, he was a co-author of The Grimsey Review – An Alternative Future For The High Street and in 2018 he was also co-author for Grimsey Review 2.

From 2009 to 2017 he was a director at The Local Data Company where he established it as the UK’s leading data and insights company in the retail property sector. He grew revenues by over 500% and helped the company win many high-profile clients including Experian, CACI, O2, British Land, NewRiver, Land Securities, Manchester City Council, Su- perdrug, Pizza Hut, PwC, Deloitte, Lloyds Bank, Metro Bank, Barclays, Morgan Stanley, Na- tionwide and UBS. During this time, the company achieved a 94% renewal rate in business and established itself as a go to’ source for independent data and analytics through its cutting edge online dashboards and reports. In partnership with Morgan Stanley he built the UK’s first Location Health Index on over 3,000 locations.

From 2003 to 2008 he was the Operations Director for CoStar Group in the UK where he led the expansion of the research team and integration of the technology platforms with the US parent. During this time, he was involved in several acquisitions including Propex, Scottish Property Network and Grecam (Paris). He worked for FOCUS (Property Intelli- gence) from 1997 to 2003 where he started as a sales executive and became the operations director. Prior to this he was an Infantry officer serving with the Queen’s Own Highlanders and Royal Marines from 1990 to 1997.

Matthew is a Visiting Professor at University College London and sits on the Research Advisory Board of Nottingham Business School. He is a volunteer business mentor for The Prince’s Trust in the East Midlands. He is a regular speaker, panellist and chair at industry events. In May 2018 he was runner up in the Innovator of the Year Award category for the British Ex-Forces in Business Awards.

Born in 1968, Matthew was educated at Stonyhurst College, Lancashire, the University of Aberdeen where he graduated with an MA(Hons) in Political Studies and the Royal Military Academy Sandhurst.