How the decline in the British high street may herald a golden era for BTR.
As hospitality and retail sectors re-open and much of the UK takes the first steps back into something approaching halfway to normal, it’s fair to say there is a feeling of excitement blended with trepidation and uncertainty.
No-one can predict what life will look like in six months. But, one confirmed casualty as a result of the impact of Covid-19 is the much-loved UK high street. Enforced closures and a dramatic reduction in customer footfall have had a devastating effect.
For some retailers, the pandemic has had permanent consequences. The economic downturn exacerbated by the virus has felled a number of big-name brands, most notably Debenhams and John Lewis. Debenhams confirmed the closure of all 118 of its stores in January, while in March John Lewis announced eight further stores would be closed in addition to the eight it revealed last year.
While it’s natural to miss the presence of familiar retailers many of us have grown up with, their departure from city high streets shouldn’t leave indefinite physical voids. Empty buildings in city centres are a feature that nobody wants to see; they need to be filled and if major retailers are departing, this presents other opportunities.
Indeed, while there might be a decline in the demand for retail property – and office property, too, with companies re-assessing the requirements for employees’ physical location – there’s a surge in UK Build to Rent (BTR).
“The long-term impact of Covid on the high street is expected to be severe”, says Hatch’s Founder and Managing Director Darren Phillips.
“As retail outlets close there’s a new opportunity for BTR in high profile locations. Investment in retail property is also producing poor returns, whereas residential investment is expected to continue to deliver well in the UK, thanks to increasing rental values.”
Our view is supported by highly promising data. According to research released in April by Savills, more than £1.2 billion was invested into the UK BTR market in Q1 of 2021. These figures actually make the period the highest quarter on record. Such growth fuels the likelihood of an emerging trend – residential development repurposing high street retail units.
This article in Property Investor Today asked the question: Can the high street be saved by residential development? It points to the benefits of making city and town centres more residential; introducing people into urban areas to increase footfall and revitalise bars, cafes, restaurants, theatres and stores. Mixing residential with retail has the potential to bring a buzz back into UK high streets that might otherwise feel half empty and deserted at certain points of the day.
The process is already under way in some parts of the UK. Retail Gazette recently reported that Leicester’s former Debenhams store is going to be converted into 300 rental flats. And, last June, PM Boris Johnson announced what were considered ‘radical reforms’ to the planning system. This included easier methods of converting commercial properties into residential housing, and suggested more flexibility and freedom in repurposing.
So, with retail property vacancy set to rise in the coming years, as the demand for residential housing does the same, it’s clear that the environment is rich for BTR investors.
“Hatch expects to see opportunities for its BTR partners to transform the high street into a vibrant mixed-use district where BTR apartments sit alongside successful experiential retailers”, adds Darren. “Having developed considerable expertise in dramatising the industrial heritage of current BTR developments through creative interior schemes, the Hatch team expects to be inspired by the glory days of the department store in schemes to come.”