10 Sep 2021

One of the biggest trends during the pandemic from a property development point of view has been a dramatic increase in the number of office/retail to resi conversions, made easier by new Permitted Development Rights which means change of use doesn’t require planning permission.

We’ve also seen the likes of retail giant John Lewis make clear its intention to enter the Build to Rent sphere to better utilise shop space it no longer needs.

That said, the momentum behind office/retail to resi has fallen away a little bit in recent months as society has fully reopened, people have started to return to the office (even if only on a part-time basis) and shops, bars and restaurants have started to trade properly again.

Despite this, research suggests the high street is still struggling badly to recover from the pandemic, none more so than in London where boarded-up shops and restaurants are now far more commonplace. This trend was occurring even before the pandemic, but has definitely been supercharged by Covid.

The BBC recently reported that nearly 50 shops a day are disappearing from high streets up and down the UK, with more than 8,700 chain stores closed on high streets, shopping centres and retail parks in the first six months of this year, according to research.

The ongoing impact of the pandemic and changing shopping habits have continued to combine to hit many towns and city centres. However, despite some especially high-profile retail closures in recent times, the number of shops shutting down for good has dropped compared with a year ago.

Unsurprisingly city centres have suffered the worst, with many becoming virtual ghost towns for parts of the Covid crisis and only now starting to recover. Even then, footfall is still down on pre-pandemic levels.

The Local Data Company collected the figures on store closures on behalf of accountancy firm PwC, and Lisa Hooker, consumer market leads at the company, said: “After an acceleration in store closures last year couple with last-minute Christmas tier restrictions and lockdowns extending into 2021, we might have expected a higher number of store closures this year.

She claimed that continued government support in tandem with resilient consumer spending has helped many operators weather the storm and survive the pandemic, but it’s still the case that closures are comfortably dwarfing new openings.

While 3,488 stores opened their doors in the first six months of 2021, the closures were much bigger, with a total of 8,739 shops closing their doors for good. This created a net decline of 5,251 outlets – an undeniably large number, but still 750 less than this time last year.

According to the BBC report, fashion retailers recorded the biggest decline, with the collapse of Sir Philip Green’s retail empire – which saw his brands including Topshop and Dorothy Perkins disappear from the high street – the most prominent example.

The research also revealed that 120 departments shut for good in the first six months of this year, following hot on the heels of data showing that the UK has lost 83% of its main department stores in the five years since the collapse of BHS.

The findings, compiled by commercial property information firm CoStar Group, also found that more than two-thirds of these shops remain unoccupied, with some 237 big stores yet to be taken over by a new business.

While the Local Data Company/PwC report found that city centres are still suffering the most in terms of high street decline, suburban areas are performing much better as they are supported by those still working from home on a full or part-time basis.

The capital, for example, has moved from being the best performing region for retail in 2016 to the worst for two years in succession.

What will happen next?

The latest closures outlined by the research follow the loss of over 17,500 chain outlets last year as the pandemic battered the retail market. But is the worst now over with?

Lucy Stainton, head of retail and strategic partnerships at the Local Data Company, said there are promising signs that the speed of the decline across the worst of the pandemic is now slowing.

“That being said, the compound impact of multiple lockdowns can’t be ignored and whilst a slowdown in store closures is certainly welcome, the volume of empty units across Great Britain is at a record high with no sign that the demand will ever be there to meet the supply,” she added.

Hooker believes the next six months will be ‘make or break’ for many chains. “Operators are far from out of the woods… particularly with the reinstatement of full business rates for all but the smallest operators, the winding-down of furlough support and agreement yet to be reached between many operators and landlords on rent arrears,” she told the BBC.

“But the good news is that there are some green shoots of optimism. Consumers still want a shopping experience and a number of chain stores and restaurants are opening.”

Post-pandemic – the perfect storm for office-to-resi?

While there has been a push from various quarters, including the government, to get people back into the office, many are still resisting – and many employers are realising the benefits of a hybrid model.

“The CIPD found that two thirds of employers plan to introduce or expand the use of hybrid working to some degree,” Andrew Ward, founder of Solomon New Homes, said.

“As more businesses saw the feasibility and benefits of home working during the pandemic, a spacious office is no longer a necessity for many.”

He added: “Along with the rise in home working comes an opportunity for the housing market. Housing secretary Robert Jenrick welcomes these changes to working life given that it could help meet housing objectives on brownfield sites. Not only that, it encourages people to live outside of the big cities, encouraging property investment in secondary towns and cities.”

Ward argues that, as several workplaces need less office space, or perhaps none at all, the availability for office-to-resi stock will only rise.

“Post-pandemic, there’s a good chance that we see more new residential properties come to the market that began life as a commercial building. But as we’re seeing in London currently, converting commercial buildings could be met with some resistance. 17 out of London’s 35 local planning authorities have either introduced or plan to introduce an Article 4 direction (A4D), giving councils the power to stop office-to-resi permitted development,” Ward commented.

“One councillor cites a reason behind this being the fear that it could lead to low-quality housing. We can only embrace this new stage of the housing market with well-thought-out plans, which take into account housing that people – particularly young professionals – want and need.”

Ward believes that now that more professionals spend less, or even zero, time in the office, the need for quality housing has never been more crucial.

“But it’s not just about quality, it’s also about providing housing that complements the lifestyle sought by the modern professional,” he said. “Office buildings often provide the best kind of brownfield site since many of them already have parking facilities and are close to town and city centres. It’s an ideal fusion of an exciting urban life alongside the ability to travel easily.”

He concluded: “Post-pandemic, working life could look very different, and that only means that what we want from a home will change too. As the daily commute to the office becomes a rarity for many, the housing market will inevitably adapt to meet the demand for housing in towns and cities with homes that suit a ‘working from home’ lifestyle.”

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