UK: RICS Beyond Retail

Last Updated: 13 November 2013
Article by Arya Hussain

The Royal Institution of Chartered Surveyors (RICS) has published an Information Note entitled 'High Streets – Beyond Retail', which looks at the decline of retailing on the High Street and in town centres and proposes possible solutions to help reverse the negative trend.

Article Summary

The aim of the Information Note is to provide guidance to surveyors on the key issues arising in High Streets and town centres at a time when the demand for existing retail space in many centres is declining. The decline has implications not just for empty shop units, but also the health of the trading environment that occupied units rely on. The Note seeks to guide surveyors on how they can respond to this challenging environment.

While the focus is on surveyors, the problem and its solution involve how the high street is planned, developed and managed. The considerations that arise are therefore relevant to a range of parties, from landlords and tenants to those involved in the areas of law and planning.

The Decline

The Note posits various reasons for the decline in high streets and town centres:

  • Decline in consumer spending: the 2008 financial crisis has left consumers with less money to spend. Even under a strong economy the pre-2008 retail growth may be difficult to reproduce, as it is widely accepted such growth was financed by an unsustainable increase in household debt. Added to this is an ageing population with older people historically spending less on consumer goods.
  • Changes in consumer behaviour: the growth of internet shopping has reduced the dependency on high street shopping, as has car ownership which has made out-of-town shopping more accessible. The movement of women into the workforce has further decreased daytime footfall and consequent spending in town centres.
  • Changes in the structure of the retail industry: shopping centres and retail parks have moved trade away from the high street, as has the diversification of goods sold by supermarkets. The rise in e-commerce means not only the online purchase of physical products that used to be sold in shops, but also the buying of electronic substitutes of physical products- MP3s and ebooks instead of CDs and hardbacks.

The Strategy

The Note looks at who is in charge of the town centre, identifying that while local authorities used to play a lead role in managing town centres, they now face revenue shortfalls limiting their ability to take substantive action.

This means greater private sector involvement is likely to be required with landlords and occupiers working closely with local authorities and other bodies to implement the needed strategy.

The Note's proposed overall strategy to revive town centres can be described as town centres and high streets needing to offer an experience that shopping centres and the internet are unable to match; a blend of retail and socialising, with offices and services (schools, doctor surgeries), increasing the attractiveness of the town centre and its footfall.

This will have to be supported with other underlying strategies including:

  • Differentiation: building on a town centre's distinctiveness (such as its historic buildings) to make it an inimitable and attractive destination
  • Reduce cost base: rent and rates are the largest occupation costs for retailers. Reducing these can allow profitability at lower sales and encourage tenants.
  • Accessibility: suitable parking and transport links enabling consumers to easily and swiftly access town centres and high streets.

The Effect of Change

Commercial surveyors have traditionally reported on the state of the market. Greater sophistication may now be required in that process, with anticipation of the rapid change town centres are undergoing.

Surveyors need also to consider the effect on the full repairing and insuring lease (FRI). Traditionally their client's expectations under an FRI were clear- organise the fitting out at the beginning of the lease, ensure repairing obligations were complied with fully, and, if required, at the end of the lease negotiate a dilapidations settlement.

However, potential tenants may now be reticent to take on full repairing liabilities, particularly as shorter leases are sought. Pop-ups and newly started small businesses may find repair obligations and compliance with health and safety regulations too onerous and unmanageable, requiring assistance from the landlord.

Tenants may also face liquidation or be too financially weak to meet a dilapidations claim at the end of a lease.

Landlords and occupiers also need to have a strong regard to this fast changing commercial reality and its effect on trading patterns and levels of rent in town centres.

In town centres facing difficulty, keeping units occupied can often be the primary focus. This in turn affects the nature of the tenancy; should lengthy rent-free periods be granted to encourage a tenant? If so, the landlord will want to ensure the tenant remains for a sufficient period of time.

Temporary uses may be an attractive option to a landlord, resulting in occupation of the unit and avoiding liability for empty rates. However, this needs to be balanced against the increased risk of granting possession to occupiers who may be financially unsound and unaware of their obligations.

It may be better for the landlord to consider an alternative use for the unit. This could be another retail use, but it could also mean going further so as to convert the whole unit to an office or residential use.

This will require the services of planning and other specialists to assess the practicality of an alternative use against the cost of implementing it.

RICS invited responses to their Note by 8 November 2013. It will be interesting to see what further proposals are put forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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