The recent announcement on the proposed combination of J Sainsbury and Asda is big news for the world of convenience shopping and seems an opportune moment to examine what the future has in store for the UK’s retail parks, as historically car-led convenience was this retail sector’s USP.
It has been well documented that shoppers’ expectations are altering radically in the UK. Technology has raised the bar in relation to convenience, personalisation and service. In today’s world, the vibrancy of a store and its experiential qualities are becoming more and more important. Meanwhile, e-commerce has jettisoned many issues related to physical retailing, namely time costs, product availability and lack of customer service.
The rise of auto replenishment services, empowered by e-commerce, is increasingly likely to become the norm. Other factors, such as the likely decrease in car ownership over time as car sharing and taxis become even easier to access, will also reduce the relative importance of convenience shopping and low engagement shopping.
Find out more - Sainsbury’s-Asda merger: when two become one
As a result, supermarkets will need significantly less physical space in the period ahead, with very large supermarkets (60,000 sq ft+) likely to be more at risk. This also raises significant questions over the future of retail parks, which are often home to other occupiers such as sellers of electronic or bulky goods, which are at risk to e-commerce. In the wake of many recent CVAs and administrations, coupled with a weakening depth of occupiers, retail park rental growth is therefore likely to be muted, except for a few locations.
Experiential retailing
Ultimately, the majority of parks are currently underdeveloped in terms of experiential retailing. This suggests a significant opportunity for repositioning. Landlords must ensure that retail line-ups are both compelling and fresh so shoppers keep returning. As a result, some may have to totally re-configure as current space does not match requirements. Varied two-sided street retail centres, like Whiteley Village in Hampshire, instantly create a more attractive destination; and provides an example of refashioning a ‘town centre offer’ in an edge of town location. However, the adaptability of a site is a key requirement to implement such changes.
Historically, easy car access and free parking provided retail parks with a convenience factor that was difficult to replicate. This clearly is of less importance for today’s shopper so one redevelopment model could be to introduce a hybrid pick-up and delivery retail centre, incorporating drive-throughs, pick-up lockers, smaller traditional stores, as well as a last-mile fulfilment facility.
Additionally, alternative redevelopments in the residential and/or offices sector could be considered on appropriate sites. The aim would be to deliver a more rounded, mixed-use scheme, with the retail component likely consisting of traditional convenience stores and food and beverage operators. Clearly land values will be the driver of this strategy for landlords. Currently this will only be feasible in London and the South East.
The mix of occupiers on retail parks will need to change too. Scale is critical when looking to create a strong retail and leisure destination. Greater scale implies more consumer choice and a wider offer. As occupiers deploy multichannel strategies, they will continue to locate in places with high footfall and the potential to enhance brands. Landlords of retail parks will need to have large adaptable sites to compete with strong centres in cities and regional shopping centres. Smaller retail locations will generally struggle to establish themselves as destinations for high-engagement retailing.
High engagement products with the potential to offer interactive and personalised experiences will be a must. Increased and improved leisure, food and beverage provision, or even the fusion of retail and leisure parks, will also become more normal. Retail parks are characterised by low land costs and large amounts of space. Therefore, unique physical experiences like ‘competitive socialising’, such as golf and climbing walls, and other dynamic activities may take space.
“Smaller retail locations will generally struggle to establish themselves as destinations for high-engagement retailing”
In recent years, many fashion operators have migrated from town centres to retail parks. Retailers have consolidated stores and benefitted from lower occupancy costs. Crucially, landlords must be experts in specific catchments so they understand the overall retail landscape – including the local demographic picture. This will allow investors to better take advantage of changing occupier requirements.
Turning to the business case, total returns for many retail warehouses in the UK currently look relatively high compared to other parts of the real estate market. But income may only be sustainable in the short to medium term for many locations. Well-let, well-located experience-led schemes will continue to deliver strong income returns. However, over the longer-term, as more sales leak online, to in-town locations and to super-regional malls, the reduction in the relative importance of convenience means investing in many of the UK’s retail parks may be imprudent.
Ultimately, the likely route for sustained investment performance in retail parks will be locations that offer experience-led, high engagement retailing.
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