Mixed use developments: a silver bullet for the struggling retail sector

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With demand for mixed development sites set to rise in UK cities, this could be the rescue remedy for the struggling retail sector.

Retail spending has fallen back to the 2% year-on-year growth level observed four years ago, with large retailers such as British Home Stores and Toys’R’Us disappearing entirely, as a result of increased online competition. The rise in rents and in contract length of smaller shops linked to anchor tenants have resulted in a similar trend among smaller firms. Overall, the British Retail Consortium has estimated that about 85,000 retail jobs have been lost in 2018.

Finding ways to incorporate retail and other uses

Following the demise of the retail sector, UK developers are assessing how they can repurpose struggling retail malls or town centres. Jonathan Corish, commercialisation manager at Savills, suggests that many have chosen to target multiple sectors, in order to add immersive experiences to the purely transactional side of retailing, whilst simultaneously satisfying existing demand trends. Combinations include mixing office workers, residents, leisure visitors, regular events and open spaces, as well as the traditional ‘shopper’.

The conversion of existing space into flexible retail space could involve replacing a part of the existing retail space with offices or residential apartments, however, the notion of “supermix” is another attractive alternative that is becoming increasingly popular among developers. The proposed Spray Street Quarter in south London’s Greenwich, is an example of a “supermix” development, combining homes, a new public square, along with a cinema, shops and restaurants, flexible workspace and a nursery.

Whilst mixed-use developments are often associated with a relatively lengthy planning process, as well as increases in staff and professional team costs, a new outlook analysis report by JLL suggests that growing urban populations in UK cities will lead to increased competition for space and, in turn, give rise to developments that better meet the needs and demands of modern living.

Bounce back expected in late 2019

Despite the report predicting slowing leasing demand at the start of 2019, due to uncertainty surrounding the implications of the Brexit deal on businesses, a bounce back is expected in the latter part of the year. This is likely to support rents throughout the year, keeping demand robust and supply limited. The report expects more UK development sites, especially in London, to have mixed residential and industrial uses, with refurbishments dominating the market over new builds.

The latter trends and predictions should incentivise developers to overlook the exiting uncertainty looming over UK markets and carry out a detailed analysis of their existing portfolios. Whilst the retail sector had not shown promising signs of revival, there a predicted increase in demand for mixed-use refurbishments, given that around 78% of millennials prefer to spend money on an experience than on goods, as well as the fact that car sales have fallen by almost 7% in 2018, signifying that large retail parks are a phenomenon of the past. Consequently, mixed-use developments can be an effective way of providing the ‘all-in-one’ experience that is highly valued by the current population and may be the silver bullet that could revive the lagging retail sector.

Find out more about bridging loans for mixed use properties and how Tiger Bridging can help.