A Pharmacy2U vaccination centre popped up last week in a former Laura Ashley store in the Fremlin Walk shopping centre in Maidstone. The signage is pop-up, not permanent. But some feel an injection of outpatient treatment centres into shopping centres could inoculate some stores against death by Amazon.
The pleasant 20-year-old open-to-the-sky centre (pictured)is owned by M&G, looks about 20% vacant and is precariously anchored by a House of Fraser.
“The vaccination format is here to stay for the foreseeable future,” says KLM Retail consultant Rupert Guy. “Some are NHS-backed and they are taking leases of two to three years.
“The private health market is also jumping at the opportunity. It’s interesting to see where these businesses are heading. Arcadia, Clintons, Gap and Clarks replaced by dialysis, dermatology, oncology, dentist – and a jab centre!”
Guy is making a point. Hospitals are bursting at the seams. Real estate is alive with hopeful Covid-inspired chatter about life sciences. Most see development opportunities shimmering in the shape of big new labs. Guy sees something else: “There is need to move non-acute care out of hospitals. Where better than the town centres with the access to transport?” And cheap-as-chips space which will only need light alteration, he does not add.
’The vaccination format is here to stay for the forseeable future’ says Rupert Guy
The conversation that led to this column took place over breakfast with Guy and Graham Fawcett, of niche retail agent Fawcett Mead. Paid for, I had better add, by Anthony Ratcliffe, a man who has been running high street collective investment schemes for decades.
As an aside, it was wonderful to be off Zoom and meeting face to face. A Full English at George in Mount Street, Mayfair, basking outside in the morning sun, takes some beating.
Before turning to what I gleaned at breakfast, here’s a reminder – if needed – of the savage collapse in retail values. Hammerson’s kit is worth about 50% of what it was three years ago. British Land posted downward valuation movements of 26% in 2020 and a further 24% in the year to March 2021. Landsec clipped values of its ‘regional retail’ by 27% in 2020 and 38% this year. No reminder is needed that these REITs own the best kit.
A changing landscape
Thousands of smaller landlords burdened with shops worth maybe 10% to 25% of previous book values are desperate to cover holding costs.
Tenants, if found, will pay no more than 20% of their turnover in rent. Here, the ’Zone A’ world of charging extra for wider frontages has gone, as has quoting prices in pounds per square foot. Yield data based on ‘quoted’ rents can also be pretty meaningless.
Guy and Fawcett work for two top-rank retail agents. What do they see ahead? Good news and bad from Fawcett: “There is now demand on regional high streets from independent retailers prepared to pay up to £50,000 a year in rent. But landlords of secondary and tertiary centres in these towns need to think seriously about the viability of their plans. Demolition may be the only solution in many cases.”
Guy has some good news: “We are experiencing interest in the £2m to £5m range from Hong Kong residents moving permanently to the UK. They are sinking their capital into stores in provincial towns and cities. In the past three years, values have dropped by 50% and are still falling.”
These buyers are undeterred, says Guy. Inserting their cash into UK retail trumps the worry over the exit price.
Last month, M&G reopened the fund holding the 300,000 sq ft Fremlin Walk centre after banning withdrawals in December 2019. M&G paid L&G £110m in 2014, a 6% yield. Let’s not embarrass M&G with a guess of what it’s worth now and end on a positive note.
I came away from breakfast feeling that the worst of the worst was over, at least for those holding the least-worst assets. Or have I been touched by the sun?
Peter Bill is a journalist and the author of Planet Property and Broken Homes