Adding a floor inside a building seems a fairly innocuous act. What harm can there be in putting a mezzanine inside an existing store?
Apparently, a lot. Following objections from politicians and one of the UK’s largest environmental groups, the government added the condition to its planning Bill that planning permission is necessary to install mezzanine levels (see panel). The government issued a consultation document on 3 March, and a decision is expected next month.
Those in the retail sector recoiled in horror at the decision. For years, retailers have been installing mezzanines of unlimited size in their buildings. But it was supermarket giant ASDA’s admission last year that it had the potential to install mezzanines in up to 40 stores that provoked Friends of the Earth and the Liberal Democrats to take action. The objectors wanted to stop what they saw as, in the words of Friends of the Earth, “unchecked superstore growth, which has helped wreck town centres and destroyed smaller retailers”.
Protecting the high street
The proposed changes to the law are primarily aimed at the out-of-town retail sector, and have essentially been brought in to protect the high street from the furious expansion of out-of-town retail. In an EG article published in the aftermath of the announcement (Analysis, 19 March), agents were reported as urging retailers to seize their chance during this “window of opportunity [before the end of the consultation period]” and start a mezzanine-building frenzy.
Others said that, as rents have rocketed, any hint that mezzanines would not be allowed to be built would result in retailers abandoning plans to take space. A bleak picture was painted for the implications of a bill that planning minister Keith Hill says would only affect 7% of shops in England.
In addition, the government has made it clear that it does not believe the restriction of mezzanines will adversely affect competition within markets such as food retailing, DIY and general retail.
But there is good news for retailers such as Habitat and Next, which are also fans of mezzanines. First, the general election campaign will delay the bill, and second, a major loophole in the legislation has not yet been noticed by either the government or Friends of the Earth (see panel).
Retail threat
So, should retailers be worried about the proposed restrictions? And will the out-of-town retail sector suffer as much as it has led us to believe? The short answer from those in the market is a resounding yes.
Commentators have hit back at Hill’s declaration that only 7% of the retail sector would be affected, by pointing out that this comprises the biggest out-of-town retailers.
Summing up the near panic about the bill, Peter Weatherhead, director of planning with DTZ, says: “Everybody has been rushing to install mezzanine floors, and those that haven’t got on with it are potentially losing out.”
One company that specialises in building mezzanines, Birmingham-based Welconstruct, says it has seen a 30% increase in the number of mezzanine enquiries since the announcement of the changes.
The proposed change is definitely a big threat, says Tim Edwards, head of retail warehousing at Colliers CRE. “From a retail warehouse point of view, retailers have become used to, and subsequently reliant on, trading from mezzanines.”
For a sector already constrained by planning issues, restrictions on the building of mezzanines will lower property asset values. In addition, retailers are going to be affected as soon as restrictions are imposed because mezzanines, which have been considered tenants’ improvements that did not require planning permission, and hence not part of rental deals, will now become additional trading space on which landlords can charge rent.
Andrew Bradley, partner with Hartnell Taylor Cook, explains the problem with two hypothetical 10,000 sq ft stores. One has a 10,000 sq ft mezzanine, which was put in as a tenant’s improvement. The other does not yet have such a floor, but the tenant would liketo install one.
“Let’s say the rent is the same for both stores – £15 per sq ft, making it £150,000 a year,” says Bradley. “But, when the changes go through, planning permission would then have to be sought for a mezzanine floor for the shop that does not have one. This means the floor becomes part and parcel of an occupiers’ deal with a landlord.”
Bradley says the latter store would then be categorised as being a 20,000 sq ft store. “Essentially the rent would double and the retailer would be faced with a £300,000 pa rental bill,” he says. “In the short term, retailers are going to be adversely affected in their ability to pay rents.” The one plus is that this imbalance should only last for a year before retailers capitalise on having the mezzanine floor by increasing sales.
Retailers and developers do not have to wait until the end of next month to see any fallout from the government’s decision. Land Securities has been fighting since last year to build a 5,850 sq ft mezzanine unit at its Nene Valley Retail Park in Northampton. It was rejected again in February.
Bradley says that, on the back of this rejection, an option to install a mezzanine floor in a large Marks & Spencer store in the South West has been put on hold. “The M&S deal is not dead in the water yet because LandSec still has the right to appeal,” says Bradley, who is waiting to see the outcome of the case.
One glimmer of hope is the general election campaign, which is now in full swing. The original date for the end of the consultation period was only two weeks after the election on 5 May, but commentators expect the decision to be delayed, much to the relief of the industry.
“I imagine we are looking at four to five months before any legislation comes in to force — it could even be next year,” believes Ian Anderson, head of retail planning at CBRE, who adds that this delay “provides a limited opportunity for retailers to get their mezzanines in and constructed before the government pulls up the drawbridge.”
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The government introduced the Planning & Compensation Act to parliament in May 2004. Pressure from Friends of the Earth and the Liberal Democrats forced an amendment to the Act intended to enforce restrictions on internal alterations to shops. Details of the government’s proposals were released last March. It says mezzanine floorspace in excess of 2,015 sq ft will require planning permission, and that the requirement will apply to units used for retail sale of goods (other than hot food). Suggestions for alternative thresholds will be considered, but these must be supported by clear evidence outlining the costs and benefits. The proposed restriction, however, will not stop owners of buildings from installing successive additional floors of less than 2,000 sq ft. According to Kirsten Hewson, national retail planning lawyer at law firm Shoosmiths, retailers could technically construct a 2,000 sq ft mezzanine and then, as long as it is distinctive, immediately install another. But, Hewson adds, it is unlikely retailers would constantly want to close their shops to do this. The consultation period on the government’s proposals lasts for 12 weeks until 26 May. |
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Source: CWHB/Donaldsons |
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“A unit’s ability to expand by way of a mezzanine is important to investors and retailers alike. The market will adapt if mezzanines are restricted, but units with mezzanines – or with construction of a mezzanine having begun – will beat a premium.” Simon Ricketts, SJ Berwin “While we understand that there needs to be some control of mezzanines in planning law, we would like to see a sensible approach – one that will sustain existing retailing. With research suggesting a 60% growth in bulky goods expenditure over the next 11 years, where is this growth to be accommodated? And how will the already stretched planning departments deal with increased applications for expansion, especially out-of-town?” Roland Nevett, Land Securities “We all seem to be caught up in mezzanine mania. The government is simply saying that creating new out-of-town floorspace requires planning consent – hardly a radical proposal. Here in Scotland, we will watch with interest and see if the Scottish Executive choosesto follow the path of its English counterpart. Will it affect the market? Quite possibly, but those in the market will adapt, as they have done in the past, and move forward.” Colin Sangster, Culverwell “Local planning authorities may well grant planning permissions for mezzanines larger than 2,015 sq ft, so the requirementto apply for planning permission for larger mezzanines will not necessarily prevent such mezzanines being installed. But the government’s new restrictions will make this harder to achieve.” Jonathan Baldock, Partner Planning |
