Shopping malls offer the most transparent picture possible of the changing retail landscape. Shorn of the large anchor stores that not so long ago were a magnet for shoppers, many shopping malls are struggling to be viable and are considering their options.
Shopping malls have the highest vacancy (currently 17.7% which is an improvement on the highest of 19.4% in H1 2021) which is in stark contrast with out-of-town retail parks which have the lowest vacancy rates at 7.6%. To complete the picture, High Street vacancy is currently 14%. Statistics courtesy of Local Data Company
Shopping malls suffered more than the other two locations, from the pandemic lockdowns and restrictions and many have struggled to recover, although community based ‘local’ centres have faired better as they tend to provide more of a vital service to the community.
They have also been the victim of the more substantial CVA’s and closures e.g. BHS; Debenhams; House of Fraser; Mothercare; the Arcadia Group and John Lewis – the basic model for a shopping centre of anchor stores at opposite ends with smaller stores in between the two was badly affected by these closures.
The Oracle shopping centre in Reading, is a typical example – first Debenhams closed, followed by Top Shop and finally House of Fraser. This weakens the appeal of the centre both to the consumer and also potential new occupiers. Malls also have the additional challenge of high service charges owing to ageing M&E and the costs of regulatory compliance and few owners have the funds available for major refurbishment, particularly when the return on the investment is uncertain.
Some centres are also effectively ‘blighted’ by redevelopment as in Croydon, where the long running on-off redevelopment plans have effectively created years of stagnation.
Diversification is Essential
Once the above retailers vacated the anchor stores, there were precious few other retailers to take the space, so landlords were forced to reconsider and reconfigure units to appeal to a different audience. These new occupiers have included gyms; competitive socialising; restaurants / cafes / coffee shops; family entertainment centres; NHS centres; education; cinema’s; libraries; serviced offices etc.
Such diversification usually requires substantial reinvestment from the Landlord in terms of required works, and, inevitably impacts on future income due to incentive packages required by new incoming tenants. By way of a triple whammy, the rent from the new occupiers is frequently lower than from the original tenant – so ownership of shopping centres is not for the faint hearted!!
But giving consumers / end users as many different reasons as possible to visit malls has become key to their current and future viability.
Is Redevelopment An Option?
In many instances, redevelopment of either air space; or part of the shopping mall or sometimes all of it, can be a solution. In Reading, both The Oracle and Broad Street Mall have lodged planning applications for a combination of reconfiguration of existing space and development of air space to provide for over 1,000 apartments across the two sites together with some new retail / leisure units on the ground floor.
Both schemes are seeking to increase the density of square footage and create destinations where people live, work, shop and socialise.
Unfortunately, due to the time span for such schemes being several years (sometimes decades!) from when they are first muted to actually being completed, it can have the effect of ‘blighting’ either the space immediately surrounding the proposed new development, or sometimes the whole centre depending on how the development will affect the existing accessibility and attractiveness.
Existing Occupiers Have Rights
There are also existing occupiers (leaseholders) to consider. Their leases may have many years to run, which means landlords have limited control and existing occupiers still have a legal right to ‘quiet enjoyment’ that would be hard to guarantee if they find themselves in the middle of a major redevelopment and regeneration project.
The most realistic future for many malls can be one of enduring uncertainty, which makes having considered professional advice even more important if you’re a landlord or investor trying to assess your options. Hicks Baker is the only retail property specialist in the Thames Valley and is ideally positioned to offer the advice you need.
For more information contact Fiona Brownfoot: 07770 470214 f.brownfoot@hicksbaker.co.uk
