The future of the high street; a nightmare or a new beginning?
Wherever you look at the moment, the figures and reports from the high street represent a sector that is in intensive care. Whether it's the trail of businesses that have gone into administration, or the steady flow of job cuts that are now being announced on a daily basis, the high street will clearly be undergoing drastic changes in the coming months and years. But should this be seen as a nightmare or a new beginning?
COVID-19 is just the accelerant
In the world of social media and 24/7 news, combined with our insatiable appetite for understanding the here and now, we have been subjected to report after report of statistics which tend to tell us little other than the obvious. You don't have to be Einstein to understand that YOY performance has crashed, but month on month performance from May to June has improved. That rental incomes have fallen and businesses are having to cut their cloth accordingly. However, there is a danger that this immediate crisis masks the longer term situation, that has been evident for years; the high street as we know it is dead.
The emergence of online shopping, combined with a generic high street replicated up and down the country, offering little inspiration to shoppers, means that our loyalty to the high street in its current form is already over. Our high streets are more akin to a Lowry painting and it's time for change. And retailers know it. The current wave of job cuts, and shop closures from the likes of Boots and John Lewis amongst others, are more likely to be an acceleration of longer term strategies to realign their businesses, rather than a knee jerk reaction to the current pandemic. In essence, the pandemic hasn't created a crisis on the high street, it has merely acted as an accelerant to where it was already headed. But where is that destination?
How is the future high street being shaped?
It is clear that there is a danger our high streets could become wastelands of vacant premises, where no one wishes to venture. There have been plenty of studies on the future of the high street, from think tanks such as the Social Market Foundation laying out actions that should be taken. The government clearly recognises this and has started to create the conditions where change can happen with greater ease:
Changes to the Planning Uses Classes Order, effective from 1st September 2020, mean that there is a new broad Class E for retail (formerly A1), financial and professional services (formerly A2) restaurants (formerly A3), and offices (formerly B1). This is with the recognition that 'changes of use, or mixes of use within this class do not require planning permission. Bringing these uses together and allowing movement between them will give businesses greater freedom to adapt to changing circumstances and to respond more quickly to the needs of their communities'.
The expansion of permitted development rights (PDRs) to allow certain 'vacant commercial buildings, industrial buildings and residential blocks to be demolished and replaced with well-designed new residential units which meet natural light standards'. This amendment came on the back of the 2018 consultation paper 'Planning reform: Supporting the high street and increasing the delivery of new homes'.
Further planning reforms are expected imminently, where the government is said to be considering a zonal planning system, which would provide further opportunity redevelop high streets without the potential interference of local politics (You can read more on this here).
The government is also said to be reviewing business rates for post COVID-19 and there is talk of an online sales tax, although there remains scepticism as to how that can be implemented without a huge shortfall in tax revenues.
In addition to the government's strategy there is evidence that landlords are preparing to move towards turnover rents, where rent is based on revenue rather than a fixed price. This is not new, but in order to entice tenants, there is a greater likelihood that more landlords will adopt this approach. It has its downsides; greater turnover does not always reflect greater profits for the tenant, some tenants will not want to disclose their revenues, and landlords face rental income uncertainty. What it does do though is promote a close working relationship between landlord and tenant, and allows the landlord to benefit from the good times.
With the above in mind, therein lies a great opportunity for developers to shape how town centres in the future will look. With a mix of residential, retail and hospitality and office space, regeneration can be bespoke to the needs of each community, and move away from the formulaic pattern that we have seen over recent decades.
We are characteristically a nation that thrives on creativity, maybe even rebellious in our approach. Our neighbourhoods are often a mish-mash of old and new, and we certainly don't build towns in boxed grids with endless straight roads. You only need look at LinkedIn to see just how creative our architects are in designing beautiful eco friendly spaces, fit for the modern era. And there is still a need for a physical retail space, where online is not the preferred choice for customers; where customers want to see, touch and smell products, or directly interact with a human. The opportunity is there and should be an exciting one. So is there a catch?
Success requires collective ambition
The success in reshaping our high streets into bespoke community-centred destinations is not dependent on a few, but every stakeholder. There is no point having great ideas and fantastic designs, if funds are not available to deliver these projects. And this is a potential problem. Lenders are naturally cautious in their approach, and even more so in the current environment, especially regarding commercial schemes; add in the uncertainty of turnover based rental agreements and the unlikelihood of securing funds increases further. Valuers equally, typically base their decisions on a worst case scenario, and could provide a stumbling block if there is not direct comparable data in the locality.
But as proved in 2008, out of any crisis there will be those who grasp the opportunity over their competitors. Challenger banks and private funds appear to relish the chance to grab increased market share in uncertain times. I have certainly seen in the last couple of months, a steady increase in those coming back to the market or adjusting their parameters to meet the needs of new enquiries. I think it is fair to say that there is a more watchful eye, but said lenders are willing to discuss deals and see the potential in the right schemes. This should be an encouraging sign.
So will opportunity be taken?
I think that there are indications that this could be a transformational period for our high streets, and for the better. The enhancement of PDRs and reclassification of planning use classes is a step in the right direction, although I accept that governance will be key to ensure quality schemes are delivered. I have every confidence in the creativity and imagination of business and individuals to come up with exciting new spaces in town centres that engages with the local population. If the appropriate funding can be placed with the right schemes it could be very exciting, and look like anything but a scene from a Lowry painting.
Montpelier Private Finance is an independent specialist property finance broker with full market access. We procure market leading funding in development finance, bridging loans, and commercial mortgages. If you have a scheme you wish to discuss you can contact us here
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