While shifting customer behaviours and the coronavirus have taken a heavy toll on traditional shopping centre owners, Retail Week looks at the councils and retailers seeking to revitalise these spaces.
- One in five shopping centres bought between 2016 and 2019 were bought by local authorities
- Middlesbrough mayor says: “Capitalism has failed Middlesbrough, but we’re going to harness the free market to turn the city around”
- Canterbury Council “wanted to have more of a stake” in changing how its shopping centre is used
- Woking Council turned retail destination into “a major, exciting, vibrant area almost overnight”
Retail property is becoming an increasingly precarious investment, as evidenced by Intu plunging into administration in June.
Meanwhile, many of the other major landlords, such as Hammerson, are seeking to offload some of their retail portfolios.
But while major developers are backing out of retail, there is another type of investor ploughing more into shopping centres in a bid to revive them: local councils.
One in five shopping centres bought between 2016 and 2019 were acquired by local authorities attempting to redevelop town centres in decline, according to research from Revo and Lambert Smith Hampton.
“Local authorities aren’t the only buyers looking for shopping centres in the current market, but they’re certainly the most active”
Stephen Springham, Knight Frank
In cash terms, the National Audit Office estimated that between 2016/17 and 2018/19 local authorities spent £6.6bn on commercial property, compared with just £460m in the previous three years.
The pandemic is likely to exacerbate this, according to Knight Frank head of retail research Stephen Springham.
“In the 20 years prior to 2016, there had been four local authorities buying a shopping centre. In 2016 there were 10 and it’s kind of grown exponentially since then,” he says.
“Local authorities aren’t the only buyers looking for shopping centres in the current market, but they’re certainly the most active.”
Middlesbrough: bringing footfall back
One local authority that has been active over the past few years is Middlesbrough Council as it strives to revive the town centre.
Mayor Andy Preston says: “Over the last 40 years, Middlesbrough has declined as an urban, residential and retail centre. We have to take action to reverse that. Capitalism has failed Middlesbrough, but we’re going to harness the free market to turn the city around.”
The council leapt at the opportunity to snap up Middlesbrough’s Captain Cook Square shopping centre, which had been “left riddled with empty stores”, according to Preston, and the flagship House of Fraser building in the town centre in July.
For a collective outlay of around £9m, Preston believes the council got “an absolute steal” for the two retail sites and sees them sitting at the heart of a wider, ambitious plan to revitalise the centre of Middlesbrough.
Preston wants to build new residential property and offices in the heart of the town to capitalise on the rise in new technology jobs in the area. The council is also in talks over opening a “shipping container village” food, beverage and leisure scheme in the style of Boxpark.
He also wants to bring a local brewery into the town centre, along with a cinema, bingo hall, live music venues and other gaming concepts, either within or adjacent to Captain Cook Square, which he says could attract an extra 700,000 visits every year.
“We’re going to support our retail. Not by giving them money, but by giving them footfall. By driving footfall to the centre of town. Bringing footfall through leisure, new residents and workers”
Andy Preston, Mayor of Middlesbrough
Combined with the new offices and residential areas, Preston says more than a million extra people could come to the town centre each year, which will have a positive knock-on effect on its retail offer.
“We’re going to support our retail. Not by giving them money, but by giving them footfall. By driving footfall to the centre of town. Bringing footfall through leisure, new residents and workers.”
While Preston concedes that the pandemic might have made some of the ongoing discussions to bring new retailers, restaurateurs and other occupiers into Middlesbrough “more difficult”, he remains adamant that the scheme will be up and running by summer 2021.
While he says his council is not actively searching for any more retail property to purchase in the town, Preston says he wouldn’t rule it out if the right opportunity presents itself.
“We will always respond to either an absolute bargain that would make a great opportunity for the town or essential purchases to protect the town.”
Canterbury: a date with destiny
In a different vein to Middlesbrough is the Kent city of Canterbury. In February 2018, it spent £75.5m to buy up the remaining share in the city centre-based Whitefriars shopping centre, home to retailers including Primark, Fenwick and Marks & Spencer, having part-owned it with a pension fund for a number of years previously.
For Canterbury City Council head of property and regeneration Caroline Hicks, the purchase was not a desperate attempt to stop the asset from becoming insolvent. Instead, it was a calculated purchase made by a council that wanted to have “control of our own destiny”.
“The Whitefriars centre was a very well-run centre, but even then we knew which way retail was going. We wanted to have more of a stake in changing that and the uses around it,” she says.
However, unlike other councils that will try to manage such assets themselves, Hicks says the team knew it didn’t have the expertise in house to make a go of running the Whitefriars centre. So, in 2018, it partnered with landlord NewRiver, which came on board to manage it.
The partnership allows both parties to bring their expertise to the shopping centre, without getting in each other’s way.
“We’ve got a long-term business plan for the centre. A vision for the kinds of tenants, those we already have and the ones we’d like to see in there,” Hicks says.
“We pass that with the council and with NewRiver. On the tenant mix point, that’s where NewRiver’s expertise in both UK and international retail property comes in handy.”
Hicks says that when the council took ownership of the Whitefriars centre its tenant mix had become heavily skewed to mid-market, women’s fashion – a category that has suffered terribly over the past few years. Given that the adjacent high street is dominated by local, independent retailers, Hicks says keeping Whitefriars “big brand central” is important.
“We’ve got a long-term business plan for the centre. A vision for the kinds of tenants, those we already have and the ones we’d like to see in there”
Caroline Hicks, Canterbury City Council
When the council took ownership of Whitefriars, many big anchor tenants had lease breaks or renewals in a relatively short space of time. These breaks, combined with the added pressures of the pandemic, mean the council has brought forward its plans.
“What we’re doing is essentially accelerating our plans. Where we were thinking about possibilities in five or 10 years’ time, we’re now thinking if this unit should come back [on to the market] next year, how would we approach that and what would we do?”
Hicks says the council’s aim is to “diversify uses” of Whitefriars to encourage greater footfall beyond those simply looking to shop.
“In Canterbury, we have an awful lot of retail and not a lot of leisure,” she says. “We’ve also got a fair amount of food and beverage, but there’s still scope for more balancing with that.”
Canterbury has also received a lot of interest in taking space from co-working and serviced office providers.
“It won’t be so key for businesses to have big, centralised London offices in future, but being based somewhere you can get a fast train into the city in 50 minutes will still be important,” she says.
“It’s that somewhere between working from home and commuting, and I think for a place like Canterbury that’s where we see our future.”
Woking: ahead of the curve
Woking Borough Council has been investing in retail property for more than a decade.
Back in 2010, the council bought the freehold for the Wolsey Place shopping centre, which is located in the town centre next to the newer, council-owned Peacocks centre. Woking decided to effectively combine the two, according to council leader David Bittleston.
“The decision was made that if we didn’t spend some money on Wolsey Place, as the second centre in the town, it would probably make the city as a whole less attractive in the long term,” he says. “We joined the two together to create what has since become Jubilee Square.”
The council not only joined the two centres together, but it has also moved the public library into the scheme and added a much larger food and beverage offer.
Jubilee Square, which opened in 2012, “turned that corner of Woking centre into a major, exciting, vibrant area almost overnight”, says Bittleston.
Following the success of Jubilee Square, the council has subsequently weighed in to block high-rise developments from being built on one of its main high streets, Commercial Way.
Instead, it has pushed ahead with the Victoria Square development, a mixed-use development that combines 125,000 sq ft of retail and other commercial space, anchored by a Marks & Spencer food hall concept, with housing and services.
“Victoria Square is really a regeneration housing project. There will be 429 new flats across two storeys and a 23-storey Hilton hotel. Where we are heading as a town, and where most towns are heading, is that traditional town centre shopping centres have to change and offer something else.
“Our focus is on what else we should add to that shopping environment. A brand-new refurbished cinema will be there. We’ve got the more limited, but brand-led retail offering. We’ve got a theatre. We’re also looking at things like integrated health services. It gives people another reason to come to the centre in the first place.”
Despite its long history in engaging with retail and commercial space on behalf of its citizens, Bittleston says Woking Borough Council is not actively looking at any more investments at the moment. “Our overriding principle is that any purchases made with public funds must ultimately benefit the people of Woking.”
A controversial trend
The growing trend of councils buying retail property has not come without controversy. As with any property investment, buying shopping centres comes with risks and some constituents have become concerned that councils are effectively gambling on returns using taxpayer money.
These concerns were only heightened by the volatility post-pandemic that has hit both retail and the property market.
As a result, in April of this year, the Public Accounts Committee launched an inquiry into local authorities buying shopping centres. In its draft report, published on July 6, the Parliamentary watchdog found that some councils had found themselves in unsustainable levels of debt by borrowing to buy centres and criticised the Ministry of Housing, Communities & Local Government for a lack of oversight.
Despite this, Springham says that local authorities will almost certainly continue to invest in commercial property, particularly with interest rates so low for borrowing money.
“It’s so much lower for local authorities than on the open market,” he says. “They are looking at 1% or lower lending rates. If that were available to everybody else in the market, even in this market, you’d be seeing a lot more activity.”
“The rationale is very good if the local authority owns other property in the town and can marry those two together.”
Committed councils have a greater reason than many private landlords to bring about meaningful change and as the likes of Middlesbrough, Canterbury and Woking show, they have fresh ideas and energy to help revive shopping centres.
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