Mixed-used schemes need to avoid the cautious strategies demanded by investors if they are to become destinations that will pull in visitors and pull in revenue over the long term, says James Alexander
People often ask me: “What is the future of retail? Of leisure? Of museums and arts centres?” My answer is always the same: integration. We need to create unique, mixed-use “destination” projects that appeal equally to visitors, residents, and tenants.
But now, with the exception of one or two leading examples – arguably the Mailbox in Birmingham or the South Bank redevelopment plans – we have failed in this country to create the next generation of mixed-use destinations.
The primary obstacle lies in the standard financial model used to evaluate a project at its earliest stages. Commercial property development lives or dies at the hands of investment teams – without funding, the scheme will fall at the first hurdle. The prevailing demand among notoriously risk-averse investment teams is for “day one” rental flows supported by strong covenants.
Cloned products
Accepted evaluation processes mean any proposal deviating even slightly from the standard formulae fails investment appraisal. Therefore, many new entertainment, retail and leisure developments become “cloned” products. A glance around your nearest high street or out-of-town shopping centre will reveal the same mix of global retail brands. Often, even the more unusual outlets – those found in museums and galleries, for example – are occupied by standard operators. Is this what the market wants? Some recent high-profile failings would suggest not.
So what are the prospects that our towns and cities will be punctuated by innovative mixed-use developments? Such projects, imaginatively conceived and delivered, offer consumers both the opportunity to purchase goods and enjoy a memorable visit. The strategic value of enhancing a destination through unusual tenant mix justifies the risk of departing from an off-the-shelf solution.
Vegas excess and success
On the US stage, developers and investors are experimenting and reaping the rewards. Look at the success of the Guggenheim in Las Vegas, or TrizecHahn’s recent Desert Passage project. The latter combines a casino, a performing arts venue, the Aladdin hotel, a branch of New York’s Blue Note Jazz Club and retail on a Las Vegas scale.
Although I shudder at the thought that everywhere should be like Las Vegas, Desert Passage does suit, and even improve, its local environment, and here in the UK we should learn from this. The mixed-use schemes that will achieve the highest values in the long term are unique, integrated destinations that require developers to enter into partnerships with the public sector; ones where letting agents source local or unusual retail tenants to complement familiar brands; and where active management of ¼events and activities supports a coherent destination brand.
Creating an active sense of place ensures that more people will return and spend more money, thus driving investment return. Financial returns will flow from the growth in reputation of a development, which will drive footfall, spending and rent roll. In this way, imaginative destination projects offer better long-term investment returns.
Surely the time has come to look beyond the pursuit of short-term, copper-bottomed investment security. Instead, the industry should take a risk and go for flair and imagination. Consumers want a destination worth leaving home for, and investors and operators want to keep them coming back.James Alexander is MD of Locum Destination Consulting
