Conversion to alternative uses may be the only path for some, but there are other options for the imaginative.

Shropshire is the UK’s largest inland county – a fact of which many Salopians are strangely proud, and I know this because I’m one of them. It is something I will often tell people, alongside a myriad of other titbits about Shropshire being the birthplace of the Industrial Revolution, the modern Olympic Games, Charles Darwin and, according to the people of Market Drayton, gingerbread.

Despite living in London for the past 15 years, at heart I am a Salopian. This part of my life rarely crosses over into my work. Commercial real estate back home seldom makes the news. However, scanning recently through an online copy of the Shropshire Star I saw the headline that the combined value of the three main shopping centres in the county town of Shrewsbury has fallen by 65% over the past two years or so.
Situated in the town centre, an area of history and beauty with more than 650 listed buildings, the three centres were bought by the local council in January 2018. Built in the 1980s, they had grown tired and were at risk of becoming a blight on the town. At the time of the purchase, the redevelopment of the town centre was one of the stated aims of the council – alongside an income return from the investment. While refurbishment work has now been completed, and parts of the centres are much improved, the valuation of these assets has clearly not been immune to the carnage going on in UK retail.

Whether high street, retail parks or shopping centres (big and small), all types of UK retail property have suffered a precipitous fall in values over the past few years – much greater than in the rest of Europe. Not only have we seen declining net operating incomes as vacancy rates rise and rents fall, but the risk in owning shopping centres has increased. Whether it be shorter leases, weaker tenant covenants or rising capex requirements, the sector has become risky and asset management intensive.

I am not in a position to comment on whether or not this has been a good investment for Shropshire Council. However, it does make me wonder what’s coming next. Whether as investors or citizens, we all have a vested interest in finding a way forward for this type of property.

Having been part of the International Council of Shopping Centers’ (ICSC) European Research Group for the past six years, this is something I have thought about a lot. Within the group, we’ve discussed at length how physical retail must offer an experience to shoppers, giving them a reason to step away from the convenience of online. This idea of experience was often vague, but more often than not it fell into the realms of the spectacular, the extravagant and the futuristic. While this may work for large, regionally dominant centres, is that kind of experience really possible for smaller schemes to offer? In a centre that has just lost two-thirds of its value, will investors be willing to risk the additional capital expenditure required?

With many investors seeking to reduce their exposure to the retail sector, the budget for major capex programmes is likely to be limited. So perhaps we should look towards managed decline and repositioning. In a country with too much retail and too little housing, converting underutilised retail space into residential could be a desirable outcome. However, this certainly isn’t viable in all locations. The housing shortage, while acute in some cities, is not uniformly distributed across the country. Furthermore, we should not underestimate the social and economic impact of drastically reducing our town centres.

So, how else could we make these schemes viable? First off, we should not forget the basics. Surveys often show that what people are really looking for from their shopping experience is the mundane rather than the spectacular. Accessibility, safety and regularly cleaned toilets. From my experience, many shopping centres have forgotten this.

But this is not going to be enough to fill the huge amount of space currently vacant across the UK’s shopping centres, particularly secondary locations. We need vision and creativity – and for this I draw inspiration from the transformation of the London indoor market scene over the past ten years. Whether it be internationally renowned Camden, affluent Greenwich or the now trendy Tooting, these markets are packed with retailers, restaurateurs and, most importantly, consumers.

I know Tooting’s two indoor markets very well. Having settled in this part of London many years ago, I have seen its transformation from the very start. They are excellent examples for the wider retail sector – particularly for schemes that are not at the heart of major cities. Built in the 1930s, these are mixed-use markets with both food and retail, and – like many shopping centres – sit just off the main high street. A mere ten years ago these markets were suffering from low footfall and high vacancy, with reports of drugs being openly dealt.

Today all this has changed, and without major capital expenditure. The markets have shifted towards food and beverages but remain mixed-use. By engaging with the community and actively targeting new and innovative operators, the markets retain a unique character, attracting new customers and giving people a reason to keep coming back. Rents are reportedly rising, and there is now a long waiting list for units.

I am not saying all shopping centre owners can take a carbon copy approach. Far from it. Few locations benefit from the density of population and recent gentrification in this part of south-west London. However, many of our smaller towns and cities do have immediate and sometimes affluent catchment populations, while also sitting within a wider ecosystem of employment, civic functions, learning and tourism. Indeed, success will be dependent upon identifying and connecting with the unique character of each location.

This is by no means a panacea for retail property. The sector will almost certainly continue to shrink as a share of the real estate universe. There are plenty of schemes where conversion into alternative uses is the best outcome. Nonetheless, it is important that we don’t give up on all retail locations. With determination, creativity and a bit of luck, forgotten destinations may once again thrive.