After four years at UK REIT Hammerson, former managing director of retail Lawrence Hutchings has hung up his retail boots to take a sabbatical.
It marks the end of a decade in the UK retail property industry for the Australian who arrived in the UK in 2001 with Henderson Global Investors. After nearly seven years, he joined Hammerson as the UK economy plunged into recession. He swiftly proved his mettle and was promoted to managing director of retail of the UK REIT.
Hutchings’ departure comes at a pivotal point for Hammerson – just months after it revealed plans to focus exclusively on the retail sector. It is also embroiled in a public battle to control the redevelopment of Croydon town centre.
Hammerson was appointed by the majority owners of the town’s 633,400 sq ft Whitgift shopping centre – Royal London Asset Management and the Irish Banking Resolution Corporation – to oversee its redevelopment late last year. But it has been at loggerheads with Australian developer Westfield, which was appointed by freeholder and 25% leaseholder The Whitgift Foundation.
“Croydon is a great opportunity,” Hutchings says. “You have two big players and they are both very good at what they do. More twists and turns are to come before that is resolved. I hope Hammerson is successful. They have a more cohesive plan.”
Hammerson was subject to takeover rumours earlier this year when analysts at CLSA suggested that there was a compelling case for Westfield to consider an acquisition of its rival in Croydon.
M&A opportunities
Merger and acquisition activity holds great opportunity in the marketplace, Hutchings admits. For instance, earlier this year, US group Simon Property Group made its biggest purchase since 2010 by buying a 29% stake in European shopping centre operator Klépierre for around €1.5bn (£1.2bn).
“The fact that investors are global will encourage owners to be global. The more malls you manage, the more economies of scale you can get out of your business model. A combination of a maturing sector and investors who are keen to see improved returns will result in some merger activity,” Hutchings says.
“It won’t just be pan-European operators. You’ll see big US and offshore operators who will look at the UK. It’s very attractive to some of those players – they understand the market, language and legal system. The challenge will be that it will need to be consensual because hostile takeovers are notoriously difficult to execute.”
Hutchings believes that further consolidation could result in Europe being dominated by three or four big operators, similar to the US where the best retail product is dominated by around four big REITs.
While he may have focused on the prime, shiny shopping centres such as Bullring in Birmingham and Cabot Circus in Bristol during his stint at Hammerson, Hutchings still flies the flag for secondary shopping centres.
“I think we’re in danger of focusing too much on the top 30-40 locations,” he says. “I’m not saying all secondary is good because it’s not, but there are locations in that secondary pool that will perform well over the next five to 10 years.”
Hutchings believes the key to a successful secondary mall is a location in an area with an affluent demographic in the South East. Lessening the reliance on fashion retailers and boosting leisure and entertainment as well as emphasising boutique and convenience stores will all help revitalise secondary malls.
He says: “People are moving back to community. The local environment is important and I think there is a role to play and an opportunity in that area.”
Hutchings predicts that the return of the retail development pipeline will continue to focus on extensions to existing malls rather than the large-scale regional schemes developed pre-recession.
“They will be smaller extensions that are retailer demand-led and less risky because when you extend an existing centre, you already know how it performs, where the gaps are, what retailers you need to provide and where your demand is coming from,” Hutchings says.
“For retailers, it’s less risky because they can see the existing centre, they know there is footfall and they can speak to their friends that have stores there too so they know it’s good.”
For Hutchings, the advance of social media will play a vital role in influencing UK retail malls of the future.
He says: “You will see physical design changes influenced by what we see and hear in social media. It will make it customer-driven rather than architecture or management-driven.
Hutchings believes that, instead of designing something because it looks beautiful, “we’ll be designing something to fit with a customer profile. That will be verified through social media at every point in the process. It’s about entertainment now.
“That means services, entertainment and a more finessed approach towards targeting groups of customers.”
Hutchings on Portas review
“Mary Portas’s central message is a very good one. For me, it boils down to the fact that we need to act to protect local environments. People won’t want to belong to communities that have a run-down high street. It won’t install civic pride if the town centre is in a poor state of repair. The question is, how do you mobilise that? Portas Pilots will be trial and error and will be location-based.
“The other important point Portas makes is about out-of-town development. On the one hand, the government is trying to balance a growth agenda, but on the other [hand], if you look at the cities and towns that have a proliferation of out-of-town development, in nearly every case the town centre is underinvested.
“It is very hard to compete with an edge-of-town scheme because it will have a very low build cost and offer free car parking.
“Then you try to develop in the city centre where you have a very expensive build cost because you need to create something of civic quality and you have to charge for car parking and all those sorts of issues.”
annabel.dixon@estatesgazette.com
