AREF FutureGen Network - Retail: Dead or Alive?
Tuesday 30th October 2018
A very well attended event arranged by AREF’s FutureGen Committee and splendidly hosted by Osborne Clarke. Following a brief welcome and intro from the FutureGen chair, Tom Pinnell, the event moderator, Dolf Darnton, partner at Osborne Clarke took control of proceedings, introducing the keynote speaker and panel.
The keynote was Harry Pickering, Investment Manager responsible for retail and leisure assets at Schroders, while on the panel, alongside Harry, we had Harriet Pendlebury, Business Change Manager at Boden, Isabelle Hease, Head of Research and Analytics at Elandi LLP and Melanie Brown, Research Analyst for Real Estate at UBS Asset Management.
Dolf kicked-off with a live audience poll, asking “what are your views on the future of ‘bricks and mortar’ retail?” The result was fairly gloomy with the answers as follows:
Very positive 0%
Somewhat positive 29%
Somewhat negative 44%
Very negative 10%
Harry Pickering then took to the podium for his keynote and the beginning of his presentation (found here) explained why the above result was not surprising, talking through the numbers for recent retail administrations and CVAs, many of which include household names, not just smaller ‘mom and pop’ businesses. The seriousness of the situation was underlined by highlighting the Homebase CVA, the legality of which is being challenged, where eleven thousand jobs are at risk and nine million square feet of out-of-town space could be on the market if it proceeds.
Clearly the high street and out-of-town are suffering and Schroders have been rationalising their portfolio, just keeping retail space that is either considered ‘dominant’ or ‘convenience’, reflecting the polarisation in the market, as those that fall between are most challenged. Harry highlighted the fact “two thirds of Britons visit a supermarket or convenience store at least once a day”. The investment case for convenience stores includes strong covenants, tenants unlikely to leave, smaller, more liquid lot sizes, affordable rents.
Harry went on to talk about examples of what could be done with struggling sites. Firstly, the redevelopment of Bracknell town centre, a complete transformation taking around twenty years and over £240m of investment, now providing “the right accommodation for today’s operators at [he stressed] low, affordable rents.” In 2017, Bracknell was the 33rd best shopping destination in the UK, up from 243rd previously.
Another good example from Schroders is leisure destination Mermaid Quay in Cardiff. With food and beverage businesses struggling generally, Harry talked the audience through how they are introducing a new anchor tenant in Cardiff and investing to refurbish the quay, reinvigorating the area as a draw for both tenants and their customers.
Before moving onto the panel of speakers, Dolf conducted another live poll with the audience, to gauge how they would be doing their Christmas shopping, online or in-store. They were split between doing the majority on-line, 59% of the audience and 33% of them doing the majority in-store.
There followed a very interesting panel session, with questions firstly from Dolf and then the audience too. Among the topics discussed some key factors affecting retail were highlighted by the panel, namely:
- the change in consumers and their buying preferences and how bricks and mortar retail is struggling to keep up with these;
- the polarisation of this real estate sector, dominant versus convenience;
- the retailers’ focus on experience shopping
- the struggle in the middle, as dominant/experience will see rental growth, convenience less so but stable
Much was made of experience shopping. Harriet Pendlebury from Boden discussed their strategy for moving onto the high street. They are opening concessions in department stores for wider brand awareness but their own stores are very much focussed on what Boden means for their customers and ensuring a positive experience for them, in-line with the brand.
Greater collaboration was a theme too; landlords with retail tenants on events to draw people to the site, for example; with local authorities for investment to rejuvenate centres to better compete with dominant sites and/or reassign usage.
On the subject of local authorities, for smaller retail centres it was thought they need to up their commitment as they have a vital role to play, given their required investment returns are somewhat different to most institutional investors. They need to be well advised though.
Greater use of technology was also discussed, tracking and analysing footfall, demographics etc and using the data to the benefit of both the retailer and the landlord in targeting shoppers and better matching centres to those that frequent them.
We also touched on over-capacity, with many centres having been built too large in the past. Isabelle Hease, Elandi, quoted some research they had commissioned that estimated England currently had around 48% oversupply in the retail space.
Dolf closed the proceedings by repeating the initial live poll of the audience. Interestingly, as can be seen below, there was a slight positive shift in sentiment:
Very positive 0%
Somewhat positive 31%
Somewhat negative 27%
Very negative 8%
For all the detail of the discussions and insight shared, please see the full video hosted on the AREF website by clicking here, this will be posted shortly. A short video showing summary thoughts from a couple of the panel and some delegates’ key take-aways from this event, can be found on AREF’s website, this will also be posted shortly.
The AREF FutureGen Committee would like to thank all the panellists for their valuable contribution, Dolf Darnton for his excellent moderating, Osborne Clarke for kindly hosting and all the FutureGen Network that attended and helped make this event such a success. One of the core aims of AREF is to bring stakeholders in the industry together to discuss topical issues that may challenge and/or provide opportunities. This is as pertinent to the next generation of leading real estate professionals as it is to those already well established.