Is it time to offer rent free shops to save this High Street?

Just before Christmas, Daniel Pink logged into Instagram and opened a message. A stranger was offering him a shop — free of charge, no strings attached. He was naturally sceptical. It had been only a few months since Pink, 36, quit his job as a police community support officer in Dorset to sell groceries free of plastic packaging from the back of a van. But curiosity got the better of him, so he asked for more information.

The sender worked for the real estate arm of asset manager Legal & General. She told Pink that he could move his venture, Ten Foot Naked, into a newly refurbished shop in Poole’s town centre. It would be rent-free for two years and L&G would even cover the business rates.

“On the one hand I didn’t feel it was the right time ... but I felt like I’d be an idiot to say no,” said Pink. Ten Foot Naked will soon open alongside an independent fishmonger, art gallery and coffee shop.

L&G is not acting out of charity. In collaboration with the local council, the investment giant is rejuvenating Kingland Crescent, a row of boarded-up shops in Poole, to breathe fresh life into the neighbouring Dolphin shopping centre, which it bought for £58 million in 2013. Events of the past week have shown that desperate times call for desperate measures.

After years of slowly squeezing high street chains, online fashion giants Asos and Boohoo are finishing them off. Last Monday, Boohoo agreed to pay £55 million for the online business of Debenhams in a deal that will see the department store chain disappear from the high street after 242 years — before confirming on Friday that it was in exclusive talks to buy the Dorothy Perkins, Burton and Wallis brands from Arcadia Group, which collapsed with 444 stores last year. Topshop, Topman and Miss Selfridge— the remaining brands in Sir Philip Green’s fallen empire — are set to be bought by Asos.

Between them, Debenhams and Arcadia were paying business rates of about £160 million a year — more than triple the £47 million Asos and Boohoo collectively paid in tax last year.

Their imminent disappearance from high streets follows the demise of Laura Ashley, BHS and many others. As national chains collapse and the survivors lose their physical pulling power, local authorities and investors are plotting to draw people back into retail-dominated town centres by bulldozing shops to make way for homes, leisure centres, co-working spaces and medical centres.

Regeneration projects, though, need a level of public and private investment that is hard to muster for the poorer parts of the UK the government is desperate to level up. These are often the places most in need of help. Figures from the Local Data Company show that in two such areas, Burslem in Stoke-on-Trent and Gateshead, about a fifth of shops have been empty for more than three years.

“It will not be viable to build new homes or invest in new infrastructure in less affluent parts of the country because the rents can’t support the cost to build it,” said Helen Gordon, chief executive of Grainger, the Newcastle-based residential landlord. “In those areas, people are struggling to keep themselves afloat, let alone pay £3 for a coffee.”

In the 1980s, Margaret Thatcher’s relaxation of planning laws spurred a shopping centre development boom. Retailers accepted longer leases and rents well in excess of those paid for other uses, which gave landlords little incentive to think about non-retail tenants.

After the 2008 financial crisis, owners filled empty shops with cafés, hairdressers and charity shops, but over the past three years an estimated 45,000 shops have shut, leaving too many holes to fill.

Fragmented ownership of high street shops has long impeded regeneration. In one example of how this can be addressed, Coventry city council is in the process of using a compulsory purchase order to pave the way for demolition of a dreary shopping arcade and a monolithic 1960s city-centre shopping precinct.

The council has plans for a new 15-acre development on the site. Originally, it planned to anchor the scheme with a department store, only to change tack around the time House of Fraser went bust in 2018. A new proposal submitted in November will use a £98.8 million grant from the West Midlands Combined Authority, a coalition of 18 local authorities and three local enterprise partnerships, to halve the amount of retail space and build 1,300 homes, a medical centre, a co-working space and a hotel instead. “For those who question whether that is an appropriate use of public money, my answer is emphatically yes,” said Andy Street, mayor of the West Midlands. “Market values won’t justify that degree of change without public subsidy.”

Simon Cooke, executive director of the real estate adviser Apam, estimates that about 1,000 shopping centres in the UK need to be demolished and repurposed — and some councils besides Coventry are taking matters into their own hands.

As part of a near-£100 million project funded from its own budget, Stockton council bought both of the town’s shopping centres. It has set about moving all the tenants into one and demolishing the other to make way for a riverside park.

Trowbridge council plans to use £16 million of central government funding to demolish part of Castle Place shopping centre to make way for a leisure centre, community centre and some homes. After paying £4.5 million for the Maylord shopping centre last year, Herefordshire council plans to lure entrepreneurs by offering them shops on cheap, short-term deals.

After years of dithering, central government is finally waking up to the scale of the crisis on the high street. Last September the planning system was deregulated, allowing landlords to convert a shop into a café, office or a nursery without seeking planning permission.

In total, £8.6 billion of funding has been released for regeneration projects — a far cry from the paltry £1.2 million David Cameron’s government stumped up for towns wanting to implement changes suggested by “Queen of Shops” Mary Portas in 2011. The government is now taking advice on regeneration from an urban centre recovery task force, featuring the Canary Wharf developer Sir George Iacobescu and former Manchester council chief executive Sir Howard Bernstein. “The level of government intervention is unprecedented in the postwar period but we need that money multiplied many times over by the private sector,” said Mark Robinson, chairman of the High Streets Task Force, a government-commissioned body.

Private capital is flowing into bigger cities and university towns, but less fashionable towns are having to think creatively to secure funding. To attract investors for its £1 billion regeneration scheme, based around a new 3,500-capacity live entertainment venue, Swansea council is moving its head office into the city centre to guarantee footfall and provide backers with a stable, long-term income stream.

In the decade after the financial crisis, funding provided by central government to local councils dropped by a third, according to the Institute for Fiscal Studies. Risky property investments and the unexpected cost of dealing with the pandemic pushed Croydon council into a de facto debt default in November, with other local authorities tipped to end up in the same position.

Meanwhile, international investors have been deterred by the government’s moratorium on landlords’ ability to evict tenants over unpaid rent during the pandemic, as well as the proliferation of company voluntary arrangements (CVAs), a restructuring process that disproportionately affects landlords. The government’s failure to reform the £31 billion-a-year business rates system for an age when almost a third of all goods are bought online is also a significant barrier for prospective tenants. Tom Riordan, chief executive of Leeds city council, is calling on ministers to put together an investment framework that ensures the areas surrounding bigger cities also benefit from private-sector investment.

“We need to incentivise investors who invest in Leeds to invest in places like Wakefield, Bradford and York as well,” he said. “The government should put some public subsidy on the table and say, ‘Come back to us with a package that could benefit the whole area.’”

Funding challenges aside, regeneration projects are lengthy undertakings, and there are no quick fixes for councils that have not been able — or prepared — to get on the front foot. Dozens of Woolworths shops remain unoccupied 12 years after the chain went bust.

If the public and private sectors do not come together fast, empty Topshop and Debenhams stores will blight high streets for years to come.

Greg Westover

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Mobile: 07525 679375
Email: greg.westover@lgim.com

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