The EG Interview: John Strachan on five decades in retail real estate

When shopping centre owner intu collapsed three years ago, it underscored the intense strain mall owners were facing after the pandemic sped up structural changes in the retail sector. Now, as offices outside of the West End increasingly draw parallels with the structural shifts that affected shopping centres around eight years ago, there may still be some valuable lessons for other sectors to learn from the ordeal. As its former chairman, John Strachan has seen the retail property market decline to its lowest point. When he joined intu from Cushman & Wakefield in 2015 and became its chairman two years later, it was still in the FTSE 100. One of the biggest learnings of Strachan’s time at intu centred around the challenges involved in leading a listed business. “I am never going to chair a big public company again,” Strachan tells EG over a cup of coffee at a West End café. He adds that preparation for any risk to the business or sector, no matter how unlikely it may seem at the time, is fundamental.  “Don’t be relaxed about what is out there because you think there is a chance it will [shift],” he says. “The pandemic, another war in Europe – these things happen.” Learnings from intu’s collapse Was the demise of intu inevitable, even with the benefit of hindsight? Strachan doesn’t believe so. Despite the plunge in retail values at the time, he is adamant the company could have survived if not for the Covid-19 pandemic. “Essentially, the problem we had to face was the reduction in rental income during Covid,” he says. “We lost about 90% of our rental income because retailers didn’t have to pay the rent.” At the time, the business was also overladen with debt. Before it collapsed, intu’s LTV reached 68% and its debt pile stood at £4.7bn. Strachan disagrees with the notion the business was over-geared, however, he acknowledges that analysts will have a different view. “In theory, the equity was going to be washed away at any level of gearing, for any given percent. I don’t think that was the key,” he says. Strachan says intu lacked a more balanced portfolio, unlike its listed peers Hammerson, British Land and Landsec. “We only owned one thing,” he says. “Sadly, it was the one thing [that] suffered more than anything else as a real estate asset class. If we’d have had a Bicester, City office or retail park portfolio… but we didn’t.” Now Strachan takes consolation in the fact all of intu’s former properties are still trading under their new owners, and some of the bigger centres, such as Trafford, are “still flourishing”. “Footfall and sales are pretty much back to pre-Covid levels,” says Strachan. “There are great occupiers, much more leisure and all the local teams are still in place. The difference is, they’re no longer managed centrally.” Retail’s rebirth These days, Strachan has a front seat for retail’s recovery as a consultant at niche retail and leisure agency P-Three, with aspects of the market on a steadier footing. With retail’s recent resurgence, there may also be some dynamics in the cycle that those feeling the pain in the office sector could learn from. Strachan believes the occupational market is off the bottom and it is “out of sync” with the investment market. “Rents are growing, and affordability has played a part,” he says. “You could argue the investment market is still near the bottom but the number of transactions is teeny-weeny. There is little to guide us in capital markets.” Although funds and investors remain cautious about investing in the sector, Strachan is confident there will be a revival of interest in the future. The only question is around the availability of debt. “It could be 12 or 18 months before there will be much appetite to build retail portfolios but it will happen,” he says. During Strachan’s career, the market has endured five recessions. He notes that while high streets have been “twice the size” they need to be since the 1990s crash – which emptied out a lot of retail spaces – a difference between occupier dynamics in the present day and following historic recessions is that the over-spacing in the market is “much more apparent” than before. “After the previous recessions there were waves of tenants coming in, in various ways,” says Strachan. “[There was] the international dimension, [and also] things like coffee shops and mobile phone shops. Lots of concepts. And I just don’t see that out there at the moment. “There’s growth in the dining and leisure sectors, maybe in beauty and wellbeing. But I don’t feel we have the same fresh demand coming through [for] the classic high street and shopping centre spaces that we’ve had following other downturns.” Becoming the go-to agent Strachan notes that one of the market’s constants is that it has remained a relationship-driven industry, even as technology advances. He says cementing a reputation as the go-to agent is vital for surveyors seeking to recession-proof their careers in uncertain times. He says it is more critical than ever for agents to build a strong personal brand. “It is about the ability of individuals to think and deliver, much more so than it used to be,” says Strachan. “Many of the best agents, in terms of delivery, were in the bigger firms. My sense is that is not so much the case now. We all know who the crack agents are. The owners, and probably the occupiers, know the go-to people – the ones that will deliver in different areas but deliver what you want. “That would be my advice to a young aspiring shop agent. You’ve got to be one of those people. The market knows who they are. They won’t just go to your team because of the name over the door. They go to you.” That ethos was a driver in Strachan’s decision to join P-Three as a consultant. The firm was co-founded by former Healey & Baker and C&W colleague Justin Taylor just over a year ago. Its recent wins include securing an occupier for the former Rainforest Café venue on Shaftesbury Avenue, W1, and a mandate from the London Legacy Development Corporation to seek food and beverage operators at Queen Elizabeth Olympic Park, E20, and Stratford’s East Bank. For Strachan, part of the draw was the firm’s approach to winning business. “They wouldn’t even pitch for something, let alone take something on, unless they really thought they could deliver,” he says. “You can’t always say that about the big firms. No matter how busy part of a big firm is, they always want more.” Strachan was enlisted to develop P-Three’s global retail connections network, which currently comprises six partners across Australia, Japan, the Netherlands, the US and Belgium. The network is different from what the rivals offer, says Strachan, because it is not a big corporate “trying to be all things” to everyone around the world. Clients that are referred are also prioritised on its own roster, unlike larger corporates that may struggle to persuade other offices to do the same. Strachan is on the lookout for businesses with a similar ethos and expertise within their own markets. “The advantage we have over the big firms is our partners are only going to become partners if they want to be part of that process,” says Strachan. “In a big firm, you don’t have the luxury of saying, ‘I don’t want to be your partner’. You’re just another office in global network and you’re expected to attend to that preferred business. You might be doing it quite reluctantly. These are people who want reciprocation and collaboration, and they’re not going to let us down any more than we’d let them down.” A partner mindset As C&W’s former global head of retail, Strachan knows what it takes to help businesses achieve international expansion. His career began when he joined Healey & Baker in 1972, where he was head of UK and European retail for four years from 1996. Although he wasn’t initially placed in the retail practice by choice, he soon became attached to it. “You connected with places and people,” he says. ”Anything from greengrocers to Marks & Spencer. I’ve loved it ever since.” After the firm’s merger with C&W in 1998, Strachan worked on building a global retail real estate network for the firm. He says by around 2008 it had a “truly global” network of consultants. More retailers referred its US work to C&W, including H&M. Strachan recalls it was “quite a challenge” changing the mentality of some overseas markets, particularly that of New York, which operated with a pure estate agent mindset rather than that of a “real partner” to retailers or owners. He says that still doesn’t exist in some markets. In his 51-year career, Strachan counts his work in Birmingham as a standout – the opening night of the redeveloped Bullring shopping centre in 2003 is among his “high points”.  He is credited with bringing in Selfridges as the centre’s anchor, as well as Timberland. The lows, he says, are largely centred around the appointments he lost out on. One of them was being removed from the development process at Lakeside Shopping Centre in Essex in the 1980s after doing “a lot of work” on it. “I’ve never liked losing,” he says. At the time, Lakeside looked as though it would be the first centre of its type, which compounded that sense of failure. “Somewhat ironically, I ended up chairing the company that owned it,” says Strachan. In addition to P-Three, Strachan has a board role at True Global – a $1bn (£800m) private equity fund investing in brands including Hush and the Cotswold Company – which has given him a “completely different perspective” away from real estate. Nonetheless, he is keen to continue broadening his horizons. He jokes he is “open to any ideas” that people have for new appointments. “It is part of my very boring nature,” he says. “I always want to work more. That hasn’t changed.” To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews Main image: P-Three; Olympic Park: Tom Wheatley/Unsplash; Tokyo: Aleksandar Pasaric/Pexels; Bullring: Edd Griffin/Shutterstock