It is believed to take around 10 years from when a shopping centre is first considered to when it opens its doors. If you take the present wave of retail development across Europe – some 4.5m sq ft of which is due to open – at the time it was conceived the iPhone had only just hit the market.
For a local example, consider that when The Crown Estate contemplated buying and redeveloping the Westgate Centre in Oxford (main image), which opened on 24 October, they may have discussed including a branch of Borders, not realising the implications of the newly launched Kindle.
And the developers behind the Lexicon, Bracknell, which opened in September, could not have known that the UK’s number-one occupier of centre space, Three, would take a unit – the telecoms company wasn’t created until 2010.
While it is impossible to accurately predict the future there are ways to prepare for and manage the effects of change. So, if a landlord’s portfolio includes one of the 1,194 stores from 35 retailers which went bust up to August 2017 (Centre for Retail research), or if technology changes mean an occupier now needs double or half the amount of space, or they take advantage of a lease break, there are plenty of ways the extra costs to both the landlord and the incoming tenant can be mitigated.
Shortening of leases is one of the key trends which means more potential fit-out costs for landlords. Cushman & Wakefield research says the average lease has been cut from 9.2 years in 2006 to eight in 2016. While 10 years ago 17% of six-to-10 year leases had a five-year break, today the figure is 48%.
Standardised legal documents
Cushman & Wakefield’s head of retail development, John Percy, says there will always be financial and time costs involved in changing occupiers, but that steps such as having standardised legal documents and full information for due diligence will minimise this. And Savills’ head of shopping centres, Mark Simms, says landlords should introduce more group leases, as are prevalent in Germany where he procured eight stores for Apple with landlord/developer ECE, with the deal for the first store setting the template for the next seven.
But regardless of how smooth the landlord can make the transition, preparing the store for occupation can still cause costly hold-ups, and speculating on the optimum configuration is problematic. Simms says while fashion brands are looking for larger stores, there is growing demand from cosmetics and jewellery retailers in the 500-to-1,200 sq ft range. One solution is adopting flexible construction methods which create easily adaptable space. “The trick is finding the balance between providing an open and flexible space without it being soulless,” he says.
Simon Mitchell, co-founder of retail architect Sybarite, says the initial store offer is where landlords can achieve more by doing less. “When we get a shell, we have to spend money adjusting it before we can do anything. It costs £70,000 just to move a staircase.”
Similar issues are with glazing, where Mitchell says the landlords usually install cheap, single-pane greenish hued glass, which fashion retailers replace with toughened crystal clear glazing, which involves getting planning permission.
Incorporating changes
Mitchell says that for Joseph’s new Miami store it is working with a shell more akin to an open building site than the usual high-spec white box, which allows a quick, efficient and cost-effective fit out. As well as ease, the basic shell also makes it far easier to incorporate changes mandated by future legislation such as disabled or emergency access and change of use.
The best way to future proof a store is to get it right first time. Simms points to Joseph and other high-end fashion stores such as Marni where fit outs have lasted decades thanks to timeless design and adaptable elements.
Mitchell’s practice designed the recently closed London Marni store in 2003 which gave a 14-year return on an initial investment of £1,500 per sq ft. “Other Mount Street stores spend ten times that on a five-year plan,” he says. Similarly, Comme De Garcons New York’ store is still based on the original Sybarite fit-out from 20 years ago. To keep it fresh, the graffiti is changed every month.
Overall the best way to save money is not to spend it. As Percy says: “Regular changes in occupier are reflected in cash flow. But good management maintains higher revenue levels. So it’s less about reducing costs and more about increasing revenue.”
THE WHITE-BOX STYLE
Some landlords are future-proofing their stores by providing virtually finished units, leaving just branding and shelving to the tenant. “Landlords are thinking outside the box to attracting tenants and implementing affordable fit-outs by offering ‘white box’ retail units,” says Nick Symons, partner, MMX Retail.
The limited start-up costs mean the retailer can, theoretically, just plug in and start trading. Neil Hockin, head of shopping centre leasing at Lunson Mitchenall, says: “The landlord’s capital cost are higher, but this fit-out promotes shorter leases and gives greater control over tenant mix.”
The approach is particularly prevalent in the factory outlet sector. Colin Brooks, managing director, Realm, says: “By de-risking the process, we can encourage more full-price brands to break into the outlet market. This results in a more attractive proposition for retailers, which may agree to take space in a location they may have otherwise overlooked.”
Brooks says following the success of its initial pop-up, Hugo Boss recently committed to a long-term lease at its Livingston Designer Outlet, resulting in a significant shop refit, further to its original, more neutral, design.
The white box style is also adaptable for shopping centres. Hockin points to the Ginza 6 mall in Tokyo, where, akin to a department store’s concessions, many units have no defined glazed-shopfront or full-height walls, just individual branding. He says: “This shows that malls can provide quality flexible and demountable accommodation.”
Symons adds that the white-box concept “ultimately, provides both landlords and tenants with a cost-effective, short-term solution.”
TECHNOLOGY
Technological advances have brought us checkout-less stores, virtual-reality mirrors, 5D retail experiences and robot assistants. And for retailers to benefit from whatever breakthroughs come in the future, their stores must offer them the cabling, servicing and M&E that allows them to do so. As Simon Mitchell says: “This flexibility must be built in.”
Catherine Marson, regional head of design at Styles&Wood, says that rather than relying on a set layout for brand identity, retailers are using technology such as large image screens, which will increase in use as costs fall.
Meanwhile, Catherine Shuttleworth, chief executive at retail strategist Savvy, says artificial intelligence is now the primary factor influencing retail and will provide the blueprint for flexible core units. “AI will change the concept of layout. Landlords must provide the best heating, lighting, cabling, etc… Retailers will want sockets and USB connections more than shelves.”
While the likes of Amazon and Apple have got rid of cash desks, and Ralph Lauren adopts VR Mirrors, meaning customers do not actually need to enter the changing room, this space will not become superfluous. “Checkouts become return and pick-up points and dressing-rooms become the store hub where friends gather and compare outfits and send selfies,” says Shuttleworth.
Virtual reality in particular will enhance flexibility by allowing experimentation and layout changes without actually knocking down a wall. Savvy’s 5D offer at Diesel’s new London flagship store demonstrates that many aspects of a fit-out can be replaced with a virtual-reality setting. Shuttleworth says: “The fundamentals of the UK high street have remained the same since the 17th century. VR will reinvigorate it.”
