How investors and developers can benefit from investing in town centres

As 2021 drew to a close, research commissioned by PwC looked at how the UK retail and leisure market changed during the first half of the year.  The good news is the rate of store closures seemed to be falling. Less positive was evidence of a net decline of 5,251 stores in Great Britain in the first six months of the year, with the rate of store openings significantly lower than over the same period in 2020. While retail parks seem to be faring better than shopping centres, the impact appears to be most prevalent on the high street, particularly within cities. Where there has been growth, it has been led by leisure uses. To any of us in the UK stepping out into our town centres, this is no surprise.  For landlords and owners, empty units mean loss of income and value. However, the social impact should concern us all. Across the UK, national governments, local authorities, landowners and communities have a shared interest in ensuring the decline of town centres is reversed and that high streets are regenerated. At the same time, private owners and developers who want to contribute towards strong, resilient communities must consider how they can play their part. Securing long-term financial value of their assets is not their only incentive – investors increasingly want social value through improving the economic, social and environmental wellbeing of communities. Breaking the negative feedback loop Another report – Thriving community businesses provide economic and social boost despite pandemic – prepared for Power to Change, looked at how landowners, developers and investors are having a positive impact on halting and reversing the decline of town centres and high streets, and why their contribution is so important.  It noted the “two main post-Covid-19 challenges for private sector development and the retail property market are changes in the private finance and funding landscape and how to reduce the amount of empty space in town centres”. This is important because empty shops discourage investment, contributing to a general sense of decline and neglect. A solution is to shift the focus of high streets away from a primarily retail purpose towards mixed-use, community spaces, combining retail with a range of potential uses that encourage people to come together. Leisure, arts facilities, health facilities, libraries, educational uses or workplaces can act as potential anchors instead of traditional stores. Commercial property owners and developers are fundamental to this. Although owners of small, fragmented town centre portfolios may be tempted to exit the market by taking advantage of the new Class MA permitted development right to convert their commercial property to residential use, owners with a long-term interest have both the incentive and means to help transform town centres. They can do this by helping community businesses to overcome the barriers that prevent them from occupying town centre premises, which include high rents and property prices. The role of private owners and developers The report proposes that, in collaboration with the community and local authorities, developers and private property investors can support community businesses and “create places that are relevant to communities” by actively making space available for community hubs, local enterprise and meanwhile uses, and by adopting flexible and/or turnover-based leases. At the same time, many community groups would benefit from occupying town centre space but are unable to do so, perhaps due to high costs or their organisational structure.  The evaluation report on the government’s Open Doors pilot concluded the benefits of the scheme far outweighed the costs to either landlords or tenants, that there was little evidence of negative impact on communities or businesses and that the scheme enabled community groups to deliver services and build “socially stronger” communities through being offered suitable spaces in prime locations for free or reduced rent. Despite the acknowledged community benefit of the Open Doors pilot, the evaluation report noted there was little evidence to suggest that groups that had occupied the spaces during the pilot would be able to take them on independently after it ended. This is why it is important for private owners to make space on high streets or in shopping centres for community uses, co-working or local enterprise on an ongoing basis. Such space could be repurposed within existing schemes, or designed into new developments or redevelopments, secured by planning obligations where appropriate. High rents and long leases lock community businesses out, so these can be supported by subsidies, flexible leases and/or turnover rents which provide freedom for community businesses to become established and grow. Social value leases could also be considered, discounting rents in line with the social value delivered by the tenant. Social value schemes being implemented by local authorities may provide a guide as to how this could be achieved. The way forward The need to repurpose retail assets has been recognised for some time. In addition to securing the value of property portfolios, there is a wider social benefit to ensuring that town centres and high streets continue to serve a community purpose. Tools already exist to enable owners and developers to achieve this, such as early engagement and consultation with communities, the use of section 106 agreements to deliver binding commitments such as affordable workspace, or the use of flexible or turnover leases to support community businesses. Other measures may involve a little more investment of time or resources. Similarly, developing a workable social value lease arrangement may take time and investment given the relative newness of the concept. In terms of securing the long-term viability of real estate assets and the communities within which they are situated, such investment has to be worth making.  Fiona Sawyer is a professional support lawyer and Matthew White is a partner and head of planning at Herbert Smith Freehills  Image © epicioci/pixabay