Host and journalist: Paul Norman, CoStar
Richard Bourne, Managing Director, Martin’s Properties
Ross Walker-Love, Head of Development, Martin’s Properties
David Blair, Principle Director, TP Bennett Architects
Phil Cann, Executive Director, CBRE
Alistair Elliott, Chairman, Knight Frank
Nick Keable, Chairman, Development Intelligence
Graham Oliver, Partner, Gerald Eve
Mark Phillipson, Colliers, Quadrant Repurpose & Total Turnover Solutions
Peter Thomas, Director, Savills
With Chancellor Rishi Sunak’s budget freshly announced, Martin’s Properties Managing Director Richard Bourne invited a panel of experts from across the property industry, chaired by CoStar News, to discuss the government’s reforms to the planning use classes order, ultimately allowing any class use under the category of class E to be interchangeable. Richard Bourne, Managing Director, Martin’s Properties reflects.
The government’s reforms have been seen by all as a big step towards the recovery of our High Streets. At Martin’s Properties we see the reforms as an opportunity to develop and improve our retail portfolio, which includes improving the environmental impact and sustainability of our properties as well as bringing greater vibrancy and diversity to the community and heritage in which we operate. In turn we expect to enhance the long term value of the assets.
CoStar: What is the future of our High Streets?
Our panel guests welcomed the reforms. Graham Oliver even noted “this is the biggest change I have seen in my planning career”. Whilst welcoming the reforms both Mark Philipson and Peter Thomas questioned whether they would work in practical terms, highlighting the costs involved in redeveloping large retail units and the political concerns with changing use class from retail to restaurant. Such changes inherently cause sensitivities with neighbouring residents and would most likely transfer issues from the desk of planning offices down the hall to the licensing authorities, who have the power to close down premises immediately.
Alastair Elliot is largely optimistic about the High Street and its future and believes “‘the pandemic has accelerated changes that were already well underway. We now have an exceptional opportunity to act quickly and take a more strategic approach”. Alastair highlighted one of the positive messages to come out of the recent Budget’s forecast was to prepare for “a period of significant economic growth and a spending boom”. Nevertheless, he questioned whether the reforms went far enough and called on the government for “an urgent plan to rejuvenate our High Streets”. David Blair welcomed the reforms which he thinks “cut to the heart of the matter and will build greater diversity in our High Streets”.
CoStar: What development opportunities are there for landlords and developers?
From a Martin’s Properties perspective, we welcome the changes and are already seeing the impact on the Kings Road where we are receiving a number of enquiries for A3 premises from restaurateurs looking to capitalise on the reforms. We have successfully welcomed both The Ivy Chelsea Garden and Sticks’n’Sushi in the last five years, and through working closely with our customers and the local community to align their fears, we now have two successful schemes with attractive frontage benefitting the local community and bringing welcome footfall to the area. We hold the view, as landlords, that it is our responsibility to assess the social and environmental impact of our portfolio and ensure we leave behind a more co-ordinated High Street with active frontage and an environment that will =benefit the current and future generations.
Phil Cann agreed with this view and cited the relationship between landlord and tenant as one of utmost importance. He pointed out that committed landlords would be able to revitalise their high streets through pop-ups and incubator brands, bringing diversity and innovation. Cann also stressed that the biggest change for landlords in recent years was the “the importance of data and the smart use of it”. For example, he highlighted Facebook opening its first unit in London’s Westfield under ‘situ’ as a good illustration of where landlords can look to engage with customers and the wider community. Peter Thomas agreed the “more data a landlord can amass the better”.
Peter Thomas and Graham Oliver both questioned whether the reforms may make it much more difficult for valuers and ultimately lenders to place a value on assets, with the potential for different uses under Class E which all have different rental values and lease profiles.
From our point of view, the main risk of the changes to Class E is it could lead to a glut of the highest value uses rather than a good mix. High Streets need a co-ordinated masterplan for each high street, which is owned by local stakeholders and landlords to ensure that it is executed. This is something we are addressing with our fellow landlords through the Kings Road Partnership which looks to ensure a balance of uses and active street frontage, as well as various initiatives to generate footfall and community.
Martin’s Properties’ head of development, Ross Walker-Love, has been assessing opportunities for the redevelopment of department stores over the last two years, the majority of which are well located but he notes are “ultimately dark spaces with few access points”. Mark Phillipson agreed with this view and reported that in the majority of cases the most cost-efficient option for his clients was to demolish and rebuild. However, he pointed out that department stores do offer opportunity to do something significant due to their sheer size. He suggested that piecing together the High Street was a sizeable jigsaw for local authorities to ensure the right mix of uses and that to attract investment funds would need to see a clear exit. Phillipson cited the City’s The Ned as an example of a building that had been completely transformed from what it was to the success it is today. Competitive socialising, such as ‘urban golf and indoor trampolining’ facilities were noted as ideal tenants for former department stores, optimising the space and bringing footfall to town centres.
The importance of people returning to offices was emphasised by David Blair and Alistair Elliott as a key milestone for retail to thrive once more. The pandemic has served as one of the biggest challenges since World War II and has seen large scale changes in work/life balance and consumption. Elliott commented that ‘work patterns will change but cities are geared up for commuting and will only work when people go back to work. And people will only go back to work when the government gives them confidence to get back onto public transport”.
Who is set to benefit from the reforms to use class E?
Unlike the 2008 Financial Crisis, consumers are still spending, with a sharp increase in consumer spending online. Phil Cann argued that e-commerce was part of a wider retailing mix and not a replacement for bricks and mortar retail which he believes now has the opportunity to flourish, with retailers identifying the need for secure locations for ‘click & collect’. This is something that many retailers are still struggling with from a delivery and returns point of view. Nick Keable highlighted that changes and threats to retail are ‘nothing new’, noting that the introduction of PPG6 and later planning policy guidance
drove supermarkets and retail out of town centres, then focussed on getting retail back to the high street . The recent threat from online is just the latest challenge which retail and the high street will need to rise to.
At Martin’s Properties we have seen great success from our customers who quickly switched to ‘click and collect’ and ‘take away‘ models. On London’s King’s Road the hiatus between lockdowns saw transactional spend markedly higher than the year on year averages. We believe that Landlords and retailers need to work together to ensure omni channel sales routes, with physical stores being used to build brand awareness and provide space to see, touch and try the products.
Phil Cann sees the next few months as an opportunity for retailers who can still benefit from the rates holiday and anticipates rents falling in some cases up to 30-40%, paving the way for smaller brands to open on High Streets. Graham Oliver also mentioned benefits seen during the pandemic including the swift change from councils to allow restaurants and cafes to use their high streets for outdoor dining, something which has proved hugely popular and is an example that change can come about quickly and successfully.
Nick Keable sees the reforms as a ‘brilliant opportunity for local authorities and landlords to benefit from greater flexibility’. Peter Thomas felt that the benefit was for occupiers who now had access to a greater variety of sites. “Restaurants and gyms could historically only look at a handful of sites, now they can look at everything”. He also noted that landlords who are quick to consider opportunities will “steal a march on the market”. Graham Oliver felt that everyone benefited from the reforms which will “create an innovative and more dynamic High Street with the opportunity for not just a mix of uses along the high street but a mix of uses in each unit every day, with different occupiers morning, noon and night”. Mark Phillipson agrees that “ultimately the consumer will be the biggest benefactor. If we have a revitalised town centre it will encourage replacement brands and successfully lead to the re-emergence of the High Street”. Phil Cann saw the reforms as hugely positive for retailers with real estate “which can now be repurposed for the future. Space has been at a premium and is now at a discount”.
What further measures should the government implement to aid the recovery of the UKs High Streets?
Looking outside of London where the appetite for investment has historically been significantly lower, especially in Northern town centres, the panel called on the government to invest heavily to eradicate black holes on the High Street. With the onus on local authorities to work with external advisers and the private sector to curate High Streets of the future that would thrive. The importance of the government and local authorities working with landlords is paramount. Many such landlords are pension funds who have long term objectives and need to deliver returns. Nick Keable pointed to Mark Robinson’s High Street Task Force and stressed the importance on the government to require local authorities to act and support investment into the high street “unless the government drives local authorities it will be slow progress”. The panel concluded the discussions by calling on the government to look at archaic rates and council taxes and to paint a more attractive and simplified picture particularly to foreign investors for whom rates, and taxes were alien concepts.
Many questions were raised through our discussion including the dubious use of CVAs and the need for greater regulation of private equity firms when investing in businesses to prevent over leveraging and ensuring businesses are sufficiently capitalised to weather a storm. This is something that happened with retail funds after the financial crisis and has proven to be successful so far. Ultimately we all have a role to play, retailers, local authorities, businesses, communities and property owners alike, in delivering a thriving High Street and economy. With the retail sector consistently accounting for circa 5% of Gross Value Added in the UK economy, we welcome the government’s reforms and hope that through working collaboratively with our industry partners, customers and wider community our High Streets will emerge in the next few months and years more vibrant and diverse than before 2020 but it is a long road ahead
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