by Chris Brown
Many developers may well take the opportunity provided by a substantially quieter retail development market over the next few months to consider their strategic approach to retail development for the 1990s. For the specialist retail developer — and particularly the long-term investor and investor/developers — this requires consideration of the fundamental trends rather than the cycles which are so important to short-term profit.
As an industry we still lag behind markets such as those of the US and Australia in our ability to forecast development cycles. Our research suggests that late 1989 through 1990 will be an ideal time to commence retail development projects over a five-year time-scale. This is shorter than the average development period for larger schemes but there are a number of opportunities becoming available which are at least partly assembled. However, the market is now putting a premium on longer term investment opportunities and the underlying trends are the subject of this article.
The 1980s saw several significant changes of direction in retail development. Not since large-scale town-centre redevelopments commenced in the 1960s have we seen such a sea change in retailing as that which arrived during the 1980s, including bulk (and other) goods in retail warehouse parks, out-of-town regional centres and festival retailing.
A number of less substantial changes can also be seen in technology-based home shopping and small unit convenience shopping. I do not expect the 1990s to bring significant new changes in retail development, rather that these trends become established and then become increasingly more sophisticated and competitive.
Underlying all these developments are fundamental trends within society:
- increased real earnings;
- increased car ownership;
- increased leisure time;
- re-education in the 19- to 25-year age group;
- migration to the urban rural fringe
Car usage and settlement patterns now and in the future have made High Street retailing, itself the product of pedestrian rather than vehicular movement patterns, more relevant to an earlier age. City-centre retailing is relatively inefficient in financial terms and sub-optimal at least from the point of view of the most active economic participants.
However, the market mechanism is far from perfect in this regard, and public concern about out-of-centre retail is evidence of the high social costs. This concern is supported by established town-centre property-owning interests (although here market mechanisms will eventually work), and more importantly by planning constraints. The DOE adopts a pragmatic approach to out-of-centre retailing and appears to recognise the social costs in its apparent policy of one centre per metropolitan area.
Even this approach may logically lead to the majority of future development occurring out of town, while town centres focus on theme retailing in an historic setting providing a unique environment for the residential and business property markets.
Retailing and urban regeneration
This emphasis on out of town has important implications for inner-urban regeneration in the 1990s, for declining manufacturing industry both created and reinforced the present problems of our inner cities. Future inner-cities policy must recognise the market pressure for development out of centre, but must also assess other critical factors, including:
- environmental and ecological pressures on the rural fringe;
- long-term real energy costs, including pollution costs and their influence on the public versus private transportation balance;
- cost barriers to mobility for disadvantaged groups and their effect on access to employment as well as retailing and other services;
- cost of underutilisation of existing fixed and social infrastructure; and
- the value, particularly in international competition, of the brand investment in our flagship city centres
I believe there is a balance to be struck which will allow development to continue both within our inner cities and out of centre. In understanding this balance and how it may be achieved, we must first recognise that the term “inner city” is a misnomer. The inner core which includes the central business district (CBD) and prime retailing is the image by which cities are identified, but market forces have removed most residential use from this area and there is little social deprivation. The term inner city identifies areas of social deprivation which may be located geographically in the inner fringe around the CBD and prime retailing, but may also be much further removed from the central core possibly in over-spill developments or adjacent to concentrations of now declined employment.
The public sector has managed this balance in relation to regional shopping malls such as Meadowhall, Merryhill and Metro Centre, all of which have received public sector support, have met a market demand and have addressed some — though not all — of the external factors mentioned. This management has combined elements of carrot and stick. The stick has usually been existing statutory controls; the carrots have included tax breaks, grant aid and provision of road and public transport infrastructure. Infrastructure projects are a particularly positive incentive to property development around the inner core, although the present manifestation of this phenomenon appears to be questionable in some cases. These include the concentration of investment in the South East, duplication or replacement of adequate existing systems rather than genuine added value, delays in funding and reductions in specification to an extent where the return on the investment is unclear, and limited integration, particularly through the provision of suitable car parking.
This is not to denigrate the commitment to projects, but rather to urge higher quality investment through the next decade. Higher cost but less flexible investments such as monorails (rather than lower initial-cost buses) can have substantially greater influence on market confidence and therefore achieve improved pay-back on any public sector investment.
Inner-city regeneration is the most difficult property development sector, and the present (mainly political) pressures on the public system do not reward or encourage successful risk-takers from either the public or private sectors. The Chancellor’s autumn statement clearly indicated a lower growth path for 1990, and this must be reflected in greater support given to public sector agencies to further inner-urban regeneration if this and environmental quality remain priorities on the political agenda.
Business parks and migration to the urban rural fringe are an important part of the mechanism reinforcing out-of-town retail development which, in turn, encourages further similar development. Planners must continue to recognise these linkages and balance the controls, rather than allow market pressures to build to boiling point with the accompanying resource diversion in planning appeals in the green belt.
Leisure retail
An area where change is likely to be more apparent will be in the provision of leisure facilities, and “festival retailing” is by definition a completely new type of shopping. This is nothing to do with its built form, tenant mix, tenure or management, which are all developments from our existing base: it is because when people go to festival schemes they are not going shopping. At least 60% of visitors to these schemes (note the terminology, “visitors”, not shoppers or customers) give their major reason for coming as “just to browse”. Only between 10% and 15% give shopping as the primary reason for visit.
Festival retailing is successful in North America and Australia, where both affluence and lifestyle produced the first of these schemes around 20 years ago. The UK is now catching up, and Covent Garden, Albert Dock and Ocean Village will be followed in the 1990s by Newcastle Quayside, Cutlers Wharf, Sheffield, Brindleyplace, Birmingham, and Great Northern Warehouse, Manchester, among others. These schemes not only accept the challenges of a new form of retailing and of a flagship role in urban regeneration but also of an entirely new approach to retail property management. Festival retailing is a business. Turnover, visitor numbers and spend per head are monitored daily and weekly: each scheme requires a marketing department to maintain its potential. The landlord and tenant stand side by side with congruent aims, risks and rewards, and the 1990s will finally see us comparing our retail property management skills with those of the USA and Canada.
As leisure time and discretionary disposable income increase, this type of activity will grow rapidly, although we should be aware that there is presently no evidence of increased leisure time (in fact the reverse) at the top of the socioeconomic spectrum. These schemes have to be supported by true leisure attractions, and the fundamental trends indicate that the leisure industry is likely to enjoy greater long-term growth than retailing. As a result, change in this sector will be much more significant, and the present generation of leisure warehouse parks and theme parks is likely to see considerable development over the decade.
The trends are encouraging for the retail and leisure development industry, and while recent rental trends have led us into a period of reduced short-term growth and a temporary shortage of long-term equity investment, it seems clear that the future is bright, and we have to have the courage to commit ourselves now to seize the potential of the re-emerging fundamentals.
