The UK high street is in a mess and this year we’re likely to see further decline, failure and destruction.
The good news is that there are a thousand ways the high street could, can and in some cases will be creatively reimagined, redeveloped and regenerated. However, the bad news is that unless something dramatic changes in our industry, this creative reimagination, redevelopment and regeneration simply will not happen.
A big blocker to regeneration is the current investment market and its related valuations. While there are bright futures for many of our town centres, the reinvestment process can only start when market values genuinely reflect future prospects. We need to find a new equilibrium point. There will be a solution for each centre, but until current values have been rebased to a level that makes these solutions viable, nothing will happen.
In any commercial environment, money invested needs to earn a return and that is particularly the case with retail assets in today’s investment market. Investors will want a higher return to reflect the future uncertainty and the risks involved. With the base cost set far too high on so many centres, the numbers simply don’t work. Owners of these properties that require solutions will often need to arrive at values via development appraisal methods rather than an investment valuation approach.
We have started to see some price rebasing, but regeneration strategies are needed sooner rather than later or further collapse and damage to the wider social and environmental infrastructure will only make it harder for our centres to recover. This is not a cyclical downturn; it is a long-term structural change in the fundamentals, the like of which the industry has never seen before.
There may be cut-price sales; there may be lenders enforcing loan-to-value covenants, but existing owners can also rebase their portfolios now by simply acknowledging the lower values. This will give them a chance to successfully reimagine their schemes and to grow value from a new and proper base.
‘Shopping centres in receivership’ headlines should not just be seen as another sign of retail failure, but as a vital prerequisite to regenerating our high streets.
So what happens next?
Each scheme is often the heart of the community, so often the solution will be found by understanding that community. Understanding what consumers need is paramount.
Solutions need to be tailored around the cultural and physical opportunities and constraints, which vary dramatically from town to town. As much as owners need to understand their consumer, they need to build relationships with retailers that are collaborative, co-operative and continuous. It is no coincidence that retail outlet centres, with their alternative occupancy models, have not declined like their shopping-centre and high-street cousins.
There is certainly no cookie-cutter solution for today’s high-street regeneration, but with the skill sets we have across our industry and an acknowledgement of the need to rebase and reimagine, we will give ourselves a fighting chance of delivering first-class redevelopment across the UK’s high streets.
Mike Anderson is finance director at Milligan Retail