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It may be time for the wrecking ball


A leading American developer recently said of the US shopping scene: “We’re not over-developed, we’re under-demolished”. If – as seems likely – the

bulldozer will soon start rolling into redundant UK shopping centres, I’d argue that now is also the time to invest in retail assets. For too long the market has

pushed back the shadow of obsolescence in favour of new build. The art of retailing has

changed fundamentally and the level of these step changes will only increase as retail technology blooms. We, as an industry, need a new response to a wholly different landscape. Retail revenue streams have gone multi-channel, but with no noticeable population growth to compensate. Essentially, the same number

of shoppers are circulating in a bigger and more disparate retailing environment. Supply and demand

economics would suggest that if you can’t influence demand then you choke supply. Certainly, taking a radical approach to existing shopping areas will play a part in this. Local authorities will need to

take a lead and decide where there is a viable future for a

shopping centre or high street parade. If they are not to join the

casualty list, landlords and developers must respond too. They need to adapt their asset base and create value. This could encompass

exploring alternative uses and demolition, but also – where retailing is still viable – investing in providing a broader, more engaging and all-round better shopping experience. Prompt and committed

investment must go hand-in-hand with these tough decisions. If you invest ahead of the curve and position assets in the right place today then value will follow. Retailers are doing this

because they can – and must – respond more quickly to changing circumstances. The headlines are now filled with those who have not. We need to stop carping on

about rates and do something about it. Put pressure on local and national government to change (the deferral of the 2015 revaluation is just inherently wrong). You don’t have to travel far in

the UK to see the direct impact of an oversupply of retail space. Only action is going to change this picture. The future may ultimately rest with those who have a healthy bank balance and a wrecking ball.

Why Zone As don’t work


Zone As are no longer working. As a shop agent for 25 years, I’ve concluded that zoning is now one of the single biggest inhibitors to high streets and shopping centres returning to robust health. Considering the sluggish state of the economy, this may seem like a strange statement. Let me explain. Having to keep existing Zone

A values to protect capital values puts landlords in the bizarre position of often being better off having a vacant unit. The result is a loss in income, but it keeps capital values artificially high. Properties should be valued based on the business in them, not by the blanket (and blunt) approach of applying a Zone A rate across a whole block or mall. Turnover rents mean the

landlord and tenant can genuinely work in partnership to ensure that the “maximum affordable” rent is achieved. Landlords can be confident

they are getting the most income the incumbent business can afford and tenants know that for the lease duration their rent relative to turnover is capped and stable

(the only thing, really, that matters to a tenant). If agents work closer with

valuers to create a body of information, allowing them to accurately assess turnover and thus rent, the problem of valuers unfairly judging turnover rent would go away. With the schemes that GCL

manage, turnover rent is the only driver of growth (that is, no rent reviews at all). The result, in the main, is rent increases year on year. The surprising conclusion is

that a sizeable number of operators may be able to afford more rent than they paid in the previous year. When did we last debate retailers being able to afford more rent? The idea that the wide variety

of businesses represented in a high street or shopping centre can all pay the same Zone A is wrong, leaving landlords with the choice of having a vacant unit or putting in a tenant on an artificially high Zone A. Ultimately, a tenant in a unit

on an unaffordable rent will not survive. So is it not time to embrace turnover rents and look at Zone As in a new light? Great in their day – yes; nostalgic – yes; fit for purpose in 2013 – no.

Summer 2013 5



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