John Lewis may be an icon of British retail but it is now turning landlord with plans for homes across 20 of its sites and this week got the greenlight to convert almost half of its flagship Oxford Street store into offices.
The repurposing of its property estate says much about the crisis gripping bricks and mortar retail, as stores grapple with the toxic combination of the pandemic and competition from online rivals. It also hints at the changing shape of the UK’s high streets.
According to the Local Data Company, the number of retail units in the UK fell 7 per cent between 2015 and July this year, as 32,500 more stores closed than opened. The number of shops lost each year has grown steadily. Even so, 2020 stands out: there has been a net loss of 7,834 units in the first half of the year, ahead of every other full year on record and not far short of the 9,169 lost in 2019.
Fortunate areas may have seen cafés supplant stores, but many less well-off high streets have simply atrophied. Both office providers and residential developers are looking to fill gaps left behind.
“There will be a lot less commuting: more people will work in their local communities; less in places like London,” said Mark Dixon, chief executive of flexible working company IWG. The group is betting that office demand in coming years will be on suburban high streets rather than city centres.
Outsourcing group Serco, which is running the UK’s test-and-trace system, is considering relocating staff from large central offices to a network of smaller ones as the pandemic has made them wary of public transport, according to chief executive Rupert Soames. One option is on high streets because many staff would be more inclined to work locally, he said.
“There are places shutting down [on the high street], well with a bit of work you could make that into an office for 15 people,” he said, adding that there were no immediate plans to relocate.
John Tonkiss, head of retirement home builder McCarthy & Stone, sees the high street as fertile ground for development. “Most of what we do is brownfield redevelopment on town and city high streets . . . We bring people and commerce back to town,” he said.
The company is building a 50-home development in Middlewich, Cheshire, and has recently completed projects in Nantwich and Chorley.
As a result of coronavirus and changes to the planning system, which have made it easier to convert commercial properties to residential use, change on the high street has accelerated, he said.
Mark Robinson, chair of the High Streets Task Force, a group commissioned by the government to help revitalise town centres, said a shift in focus away from pure retail “has to be a good thing” for high streets.
“If you build hundreds of clone towns built around shopping centres with a single use, then funnily enough when you have a massive change of consumer preferences, you have a problem,” he said. “We should end up with much more diverse places, closer to the needs of the communities which they serve.”
Housing, offices, social and healthcare buildings and civic space, are all options, he added. But getting there will not be easy: “I don’t think Covid has moved us closer to solutions that wouldn’t have happened anyway. But it has made clear we need a change to everything: from business taxes to the way we lease premises,” he said.
The government last year created a £3.6bn Towns Fund to finance regeneration in 100 towns, many in the north of England, and a review of business rates is under way.
But Paul Swinney, director of policy and research at the Centre for Cities, said that the extensive repurposing of retail real estate would only really work if there was sufficient high-quality local employment to support alternative uses such as residential or leisure.
“High-skilled, service-based jobs increasingly cluster in city centres. That makes real estate there expensive but businesses are prepared to pay that price because tens or even hundreds of thousands of people are drawn in every day,” he said. Outside big urban centres, life was likely to get more difficult, he added.
Struggling with costs, a number of national retailers and casual dining chains, including Edinburgh Woollen Mill, TM Lewin and PizzaExpress, have already announced swingeing cuts to their portfolios.
Some retailers, such as New Look, have looked to stave off store closures by renegotiating rents with landlords. But lower rents would be a bitter pill to swallow for those with a stake in the properties, from pension funds, insurers and banks to local authorities and commercial landlords.
The dominance of retailers on the high street is in part because they were willing to pay higher rents. Fashion retailer Next last year cited the example of a city-centre store on which it paid £1.7m a year in rent. It estimated the same site redeveloped as office space — an exercise that could cost up to £20m — would likely fetch around £1.2m while residential would collect £1m a year.
A crucial element in turning around high streets was a clear vision from local authorities, said Melanie Leech, chief executive of the British Property Federation, which represents property owners. But she acknowledged that budget cuts over the past decade made drafting bold regeneration plans harder.
“You need the local authority to have an idea of what they want their area to be,” said Ms Leech. “There’s no point turning an empty shop into an empty office if no one wants to come into the town centre. You have to step back and say ‘what’s the vision for this place, and what do we need to get there?’”