Could Slump in High Street Retail Prove Positive for Residential Developers?

Property Developer

As High Streets Are Reshaped, Exciting Opportunities Will Surface

We’ve seen the trend growing stronger for some time, and recent retail figures appear to confirm it – consumers are turning their backs on the high street and shopping centres, and instead of shopping online. In response, we have witnessed high street changing. Shops are closing in their thousands – and not reopening. In their place, local authorities are allowing new residential to be developed. The decline of retail could provide the inner-city space that residential property developers crave.

High Street Footfall Slumps in June

Latest figures from the British Retail Consortium show that footfall on Britain’s high streets fell by 4.5%. This follows a 4.8% fall in May, and adds up to what is being called a ‘summer slump’. This appears to be an optimistic assessment of the changing nature of shopping in the UK.

Currently, internet shopping accounts for around 20% of retail spending in the UK. Recent research by Retail Economics suggests that this could rise to more than half within 10 years.

Indeed, retail data from the ONS confirms just how well e-commerce is faring compared to the high street in the UK. Between April 2018 and April 2019, online retail increased by 10.1%. In the three months to April 2019, all retail sales increased by 1.8%, while within this non-store retail sales increased by a whopping 9.4% compared to the previous three months. The shift from the high street to online is not the only forecast, but it is also happening.

More High Street Stores Will Close

We have already seen huge numbers of store closures in response to the rise of internet shopping. Lower footfall translates into retail losses and this forces closures. And shops are closing at an alarming rate:

  • In 2017, around 5,900 stores closed
  • In the first six months of 2018, 24,000 stores closed
  • Big companies such as Poundworld, BHS, Toys ‘R’ Us and House of Fraser were forced into administration
  • More recently, Mark & Spencer has announced the closure of 110 stores

There does not appear to be one sector of retail that is safe from evolving consumer habits. High rents and business rates have combined with lower footfall to harm all types of stores, including fashion, food, shoes, travel agents, estate agents and even banks.

High Streets Are Becoming More Residential

For local authorities, store closures spell trouble. They no longer benefit from the revenue that high business rates produce. Town planning departments have responded to redefine high street use. In 2017, we witnessed a mini-explosion in the number of cafés, bistros, ice cream parlours and the like on the high street. Beauty stores, too – it is still impossible to replace such experiences online.

Instead of shopping spaces, high streets are becoming community spaces, where people meet and make merry. We’ve also seen a shift to more residential on our high streets. Population growth on or near Britain’s high streets has doubled that of elsewhere. Between 2012 and 2017, the high street residential population grew by 6%, to stand at more than 10 million (ONS ‘High Streets in Great Britain’).

Store closures present a financial problem to local authorities. These same authorities are being required by the government to provide more new homes for a growing population. Turning the high street into high-density residential communities provides revenues in the short and long term, while also helping to solve a local authority’s housing needs.

Will Institutional Investors Play Their Part?

Institutional investors should have a role to play in this shift away from retail and into residential on the high street. The evolving retail market is making an investment in retail space more difficult, yet institutions must maintain diversified portfolios.

Institutions have followed the shift of retail from high street to online with a shift of their own – from retail to residential. They are focusing on buy-to-rent (BTR) and purpose-built student accommodation, providing strong income flows that align with their need to produce returns for their pension funds. Research from Savills suggests that the BTR sector could be worth £550 billion when the sector reaches maturity, from its current £10 billion.

Are Mixed-Use High Street Developments the Future?

While BTR and student accommodation are set to boom, unless some retail is provided, they will be set to fail. As we noted earlier in this article, people seek community and entertainment. They also desire convenience. They don’t want to drive miles to buy that pint of milk they suddenly need.

The future of the high street appears to be one where high-density residential of mixed tenures meshes with bars and bistros, coffee shops and convenience stores. This will satisfy local authorities’ needs, prevent high streets from becoming ghost towns, and provide much-needed housing where it is needed most.

For property developers, high street opportunities could provide the potential that they always knew existed.

To learn how Castlereach helps developers realise the potential of their development sites, call the team on 0207 923 5680. Our partnership will help get your new build and off-plan development sales to where you need them to be.

Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Castlereach. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids. Brett holds both the Level 3 Property Mark Qualifications for Property Sales and Property Lettings and Management.