Can shopping centres solve the UK’s housing problem?

Last week intu became the latest landlord to look into utilising parts of its portfolio for residential development, proposing plans to build 1,000 rental homes next to its Lakeside shopping centre in Essex, replacing its House of Fraser store and car parking space. The plans follow an announcement by the retail landlord in October that it had identified the potential for 5,000 rented homes and nearly 600 hotel bedrooms to be built at its car parks and other land around its shopping centres. Intu joins a rapidly growing cohort of major shopping centre landlords that are adding residential uses to existing malls, in a bid to offset dwindling portfolio values. Unibail-Rodamco-Westfield has partnered with Canadian institutions PSP Investments and QuadReal Property Group to build 1,000 rental homes at Westfield Stratford City, while Hammerson set out its City Quarters business plan last month, which aims to deliver homes, offices, leisure and cultural spaces around its existing schemes. Boosting value In wider investment circles, it is now rare to see a marketing brochure for a shopping complex without mentioning its potential for conversion, particularly for secondary retail. Parallel to this, there is a similarly growing awareness among residential players that shopping centre housing schemes could drive value and longer-term sustainability for them. “The days of developers thinking a quiet location is perfect for residential are over – the ‘dead dormitory’ sort of development is not that exciting anymore,” says Dominic Grace, head of London residential development at Savills. “If you are a BTR developer in particular, there is strong recognition that you need some retail and [leisure such as] bars, restaurants and gyms on the doorstep that helps to underwrite and sustain rents.” Grace expects the focus will be on well-connected town centres for higher density developments, while out-of-town destinations may see growth in lower-rise schemes. Too much space While the government looks increasingly unlikely to achieve its pledge to deliver 300,000 new homes per annum by the mid-2020s, repurposing major, existing retail schemes could be one way of addressing the chronic – and complex – national shortfall in housing. Findings by consultant CACI show that 49% of retail destinations across England and Wales are over-spaced, while the UK has 17% surplus retail space – which might go some way to addressing the national housing shortage. That said, this is not evenly distributed across locations or asset types. John Platt, director at CACI, says while roughly half of retail centres have too much space, half equally has headroom for more retail. Platt also points out that those found to have too much space were typically located in mid-sized towns with “no differentiation in terms of their retail offer”. And while there is evidently scope to repurpose some retail spaces into residential, it does not necessarily mean they are all suited to conversion. “I think the thing that landlords need to take into consideration when looking at opportunities for residential is exactly the same as what they need to consider when looking at a retail development – who is my potential customer, and what do they want from my product?” Platt says. “They need to make the offer relevant to the catchment and differentiate it from the general market.” A good match Dave Butler, chief executive of UKAA, who was involved in working for intu when it was building its Lakeside centre in 1990, notes that residential conversions at retail centres are not clear-cut. He recounts seeing plans for residential uses at shopping centres in the past that have had “technical issues that have not made them financially viable”. “There are technical challenges to be faced around housebuilding,” he says. “How will those units create a place in the context that they exist in? There are questions around [road infrastructure] or design, for example, and making units operationally efficient so that it is desirable for potential customers.” But if done right, it could be an essential step in tackling local housing shortages. “There is no single solution to the housing crisis, but anything that brings forward more housing is, in principle, a good thing,” says Butler. “It is also great to reuse existing land. We would expect most [retail landlords own] land that is perhaps not as efficiently used or financially efficient as it could be.” Most retail operators also have skills that can be transferred to the residential element, benefiting the players on each side of the equation. “Shopping centre landlords are good at creating an experience, and managing these,” says Butler. “It is not simply about building houses, but about creating an environment that people want to visit, experience and live in. “When I worked with intu that was what we tried to do – not just create boxes that people want to sell things in, but an experience – so there is a natural synergy around that.” To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette