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The future of high streets and town centres

3rd June 2021

The future of commercial activity on high streets and in town centres must be considered in tandem with commercial activity before and during the pandemic.

COVID-19, and the Government restrictions generated in response to it, resulted in desolate town and city centres for months at a time.

Though devastating for businesses of all sizes, and from all industries, the pandemic has also presented an opportunity for revival and re-invention going forwards.

In recent years, the UK has seen the collapse of thousands of high street stores dependent on physical footfall including prominent retailers such as Woolworths, JJB Sports, Blockbuster and BHS. In part, this decline is thought to be linked with the corresponding growth of online retail.

The increasing unfeasibility of physical retail stores, the subsequent rise of online retail, and new planning easements appear to be the key threats poised to alter the dynamic of the high street in the future.

E-commerce

The rapid development of e-commerce over the last decade has made it possible for customers to find and order whatever they want, whenever they want.

At the end of 2009, the trend equated for 6.9% of total retail sales, yet by the end of 2019, it accounted for 21.4%. This number rose even more during the pandemic whilst national lockdown restrictions prevented non-essential retail from opening, reaching a record high of 36.4% in January 2021.

Part of the challenge for physical high street retail is the issue of business rates. These are particularly high for shops and severely impact the overall occupancy costs associated with trading at a specific location.

By comparison, online retail is generally dependent on industrial premises to fulfil and distribute orders. These units tend to be logistically positioned in areas where both business rates and rent levels are drastically lower than those in the centre of towns and cities, thus making it more viable for certain businesses.

A recent report from Retail Gazette and K3 Technologies indicates that 61% of retailers plan to reduce the number of stores they have, though 61% also plan to invest in better links between stores and online, envisaging an omnichannel future for their business.

Store closures

There were 17,532 stores closed permanently in 2020, including famous brands such as Topshop, Burton and Debenhams. This has prompted the commercial real estate industry to question whether low demand for retail space will trigger a change in the dynamic of high streets and town centres.

Similarly, the hospitality and leisure sectors that traditionally interjected the retail landscape of town centres have also suffered through the pandemic.

The AlixPartners CGA Recovery Monitor highlighted that the net closures of licensed premises between March 2020 and April 2021 was around 8,560.

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Planning overhaul

Rather than protect the businesses still in situ, or provide sufficient incentive for those requiring a physical presence, new planning regulations make it far simpler for landlords and developers to take a different approach to tackling the problem of vacant space.

In September 2020, the Government introduced a reworked set of planning use classes for property. Under the measures, a new classification called Class E (Commercial, Business and Service) was created which also enhanced how permitted development could be used by property owners.

Fundamentally, permitted development rights grant a landlord the ability to change the use of a property to a different subclass under the same classification, without formal planning permission.

Previously this restricted Class A (retail and hospitality) properties to stay as Class A properties. However, the overhaul of planning regulations in September 2020 triggered the merge of some subclasses of A, B (offices) and D (non-residential and leisure) planning use classes into the new Class E.

By grouping this variety of commercial uses together, the Government has made it possible for landlords and developers to comfortably change a premises from retail or hospitality to something more stable and profitable such as office space.

Additionally, whilst permitted development to change offices into residential property has been in place for some time, the Government recently announced that it has removed barriers to also allow high street shops to be converted to residential properties.

Examples

In Cambridge, the demand for office space has been on the rise in recent years and has remained steady during the pandemic. It was recently announced that one of the city’s prominent shopping centres would play host to a new flexible office operator. This deal saw 15,000 square foot of new office space fill in the gap left by former retail stores.

A similar announcement was made in October 2020; the upper three floors of John Lewis’ flagship Oxford Street store will be converted into offices for new tenants. This would take the place of retail areas previously used by the department store, reducing the total retail space in the premises by 45%.

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Where people want to be

The pandemic has caused an acceleration in the decline of high streets. However, recently published data indicates that the general public are desperate to be out and about in towns now that lockdown restrictions are formally lifting.

As well as promising footfall figures, that could promote the UK’s economic recovery if they continue, many commentators feel that the high street could be transformed to host more hospitality and leisure businesses as people look to re-ignite social interactions.

A survey conducted by Lichfields, which focused on the opinions of young people before the pandemic hit, found that the most popular reason to visit a town centre was to eat out with friends and family. It also emerged that this was most popular thing they were looking forward to after lockdown ended.

Additionally, Deloitte’s Consumer Tracker indicated that 60% of respondents listed a return to shopping as their number one choice of leisure activity once COVID restrictions were lifted.

Government support

The Government have provided support for high street businesses in the form of business rates relief and reduced VAT, though these temporary measures are set to be phased out over the latter half of 2021.

Additionally, eligible businesses in the non-essential retail, hospitality, leisure, personal care and accommodation sectors may apply for a coronavirus Restart Grant to help as they reopen their doors.

To aid recovery of high streets in the immediate and longer term, the Government have set aside £830 million in the Future High Streets Fund. The funding, which was initially launched during the 2018 Budget, is awarded to councils across England with the purpose of uplifting town centres.

However, it is unclear whether throwing money at this issue will be enough to rectify challenges to traditional high streets businesses that seem ingrained in societal shifts and recent legislation.

Indeed, whilst there is expected to be a renaissance for these locations in the short-term post-pandemic, serious consideration must be given by high street businesses, and those in Government, as to how town centres can draw customers back permanently.

 

Click here for more information surrounding the post-pandemic future for commercial tenants.

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