03 May 2018
Real estate, as we all know, is a fickle love. While the alternative classes become ever more alluring to savvy investors, those that have long courted the retail sector are wondering where best to invest their next dollar.
As returns have dipped in recent years, retail as an asset class is looking to evolve and grow with the moving times. The Royal Institute of Chartered Surveyors (RICS) recently examined some of the causes of the perceived decline in retail over the years, citing the rise of out-of-town centres, e-commerce and a significantly reduced reliance on ‘bricks and mortar’ by traditional retailers as key factors.
We can all see, anytime we visit a local high street, the impact that this decline has had on the number of retailers operating branches in our local towns. Instead, more and more coffee shops, some franchised but mostly boutique, now line the streets. But surely there’s a finite number of coffee shops that any single high street can hold?
The more pressing question is: what else is there for the high street? Jones Lang LaSalle has noted how alternative retailers such as Dyson and Microsoft have been taking up vacant units, not as pure retail destinations but for a space to improve customer engagement and raise brand profile. Along a similar vein, RICS report that US retailer Nordstrom has opened a high street unit with no actual stock. Rather, it’s a place that customers can pick up and try on items that they have purchased online. This unit also contains an alterations service and a coffee shop.
Further, while it’s clear that food and beverage outlets may have been overused to fill vacant units, there is potentially space in the market for alternative socialising outlets such as Flight Club and Bounce as Millennial appetite for consuming alcohol wanes. As these venues pop up on the likes of Oxford Street, it demonstrates the way in which retail asset owners must move with the times.
And what of the role of last mile logistics in reducing vacant units on the high street? Bisnow’s recent interview with Zalandos’ Vice President of Corporate Real Estate indicates there may be an appetite on the part of large e-commerce retailers to utilise vacant supermarkets and department stores for the purpose of last mile logistics – “because they have delivery zones and were designed with vehicle access in mind”. This was certainly a discussion I had with a number of clients and contacts while at MIPIM this year so it will be interesting to see how things progress in this space.
Not all developers are shying away from retail, however, with British Land reportedly purchasing a 4.9 acre chunk of Woolwich town centre, as reported by Property Week. Could it be that the oversupply of out-of-town shopping centres, coupled with an apparent preference on the part of younger Millennials to make purchases in person, will mark the rebirth of the high street?
What is certain is that, as Generation X gives way to the wants and needs of the Millennials, the high street faces a constant state of evolution. And we are already seeing the needs and activities of our clients evolving with it.
Paula Thompson is a director with First Names Group and part of our international real estate team. Paula specialises in structuring for the acquisition, development and holding of commercial real estate across a wide variety of property classes.
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