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 that planning permission be necessary to install mezzanine levels (see panel). [edit ok?]
The government presented a consultation document on 3 March [to?], and a decision is expected next month.
Those in the retail sector recoiled in horror. Mezzanines had been installed in buildings with no set limitation on floor space for the past few years. But it was supermarket giant Asda’s declaration last year that it had the ability to put mezzanines in 40 stores that sparked Friends of the Earth and the Liberal Democrats into action.
The objectors wanted to stop what they saw as “unchecked superstore growth, which has helped wreck town centres and destroy smaller retailers”.
The changes in the law are primarily aimed at the out-of-town retail sector and have essentially been brought in to protect the high street from ever-expanding out-of-town retail.
In an EG article published in the aftermath of the announcement [EG, 19 March, 2005] agents were 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 any hint that mezzanines would not be allowed to be built would result in retailers abandoning plans to take space as rents rocketed.
A rather doom and gloom picture was painted for a Bill that planning minister, Keith Hill, says would only affect 7% of shops in England. Plus, the government has made it clear that it does not consider the restriction of mezzanines (ck) will adversely affect competition within separate markets such as food retailing, DIY or general retail.
But, there is good news for retailers such as Habitat and Next – also fans of mezzanines. Firstly, the election campaign was called, which it is hoped will delay the Bill, and a major loop hole in the legislation has yet gone unnoticed by the government and Friends of the Earth that could work in favour of occupiers and landlords (see panel).
A few weeks after the dust has settled, is there really anything to be worried about? Will the out-of-town sector suffer as much as has been lead to believe?
The short answer from those in the market is a resounding yes.
Commentators have hit back at Keith Hill’s declaration that only 7% of the retail sector would be affected, by pointing out this 7% constitutes the biggest out-of-town retailers. The reason some are worried.
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 deal, 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.”
The major problem lies with money and the ability to increase floor space in a sector already constrained by planning issues.
Restrictions on the building of mezzanines will have an effect on property asset values. Added to that, retailers are immediately going to be affected as mezzanines, which have been considered tenants’ improvements that did not require planning permission – and hence not part of the rental deals – will now become additional trading space on which landlords can charge rent.
Andrew Bradley, partner with Hartnell Taylor Cook, spells out the problem. As an example he uses two fictional 10,000 sq ft stores. One has a 10,000 sq ft mezzanine, which was put in as a tenant’s improvement, and one store has not, but the tenant would like a mezzanine.
“Let’s say the rent is £15 per sq ft, making it £150,000 a year – essentially the same for both stores,” says Bradley, “But, when the changes go through, planning permission would then have to be sought for a mezzanine floor for the shop that has none. This means the floor becomes part and parcel of an occupiers’ deal with a landlord.”
Bradley says his fictional store would then be categorised as being a 20,000 sq ft store. “Essentially the rent will double and the retailer will be faced with a £300,000-a-year rental bill.”
“In the short term, retailers are going to be adversely affected in their ability to pay rents,” says Edwards. The one plus point is that this imbalance should last for only a year before retailers categorise [?] on having the mezzanine floor to increase sales.
Retailers and developers do not have to wait until the end of next month to see any fall out 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, on the back of LandSec’s further rejection, an option to put a mezzanine floor in a large Marks & Spencer store has been put on hold. Bradley would only say the store is in the South West.
“My deal is not dead in the water yet because Land Sec 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 a couple of weeks after the election on May 5, 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.”
PANEL: Planning and Compensation Act timeline
May, 2004 Government introduces the Planning & Compensation Act to parliament
Pressure from Friends of the Earth, along with the Liberal Democrats, forced an amendment to be added to the Act before it became law to enforce internal alterations
March 03, 2005 Government releases details of Act:
- Mezzanine floor space in excess of 2015 sq ft would require planning permission
- This requirement applies to units used for retail sale of goods (other than hot food), and where effect will be to provide additional floor space, which can be used for the sale of goods
- Suggestions for alternative thresholds will be considered. However, these must be supported by clear evidence on the costs and benefits
- There is one significant omission – the proposed change does not preclude owners of buildings from installing successive additions 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, to immediately install another. But, Hewson adds, it is unlikely retailers would constantly want to close their shops to do this.
The consultation period lasts for 12 weeks until 26 May.
Source: CWHB/Donaldson’s
PANEL: Mezzanines how important are they really?
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 sufficient to sidestep section 49 [of the proposed PPS6 changes] – will be at a premium.
Simon Ricketts, partner, planning and environment – SJ Berwin
Local planning authorities may well grant planning permissions for mezzanines of larger than 200 sq m gross, so the requirement to apply for planning permission for larger mezzanines will not necessarily prevent such mezzanines being installed. But the new PPS6 will make this harder to achieve.
Jonathan Baldock, Partner Planning
While we understand that there needs to be some control of this opening [allowing 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, Head of Retail Warehousing at Land Securities
We all seem to be caught up in mezzanine mania. The government is simply saying that creating new out-of-town floor space requires planning consent – hardly a radical proposal. Here in Scotland, we will watch with interest and see if the Executive chooses to follow the path of its English counterparts. 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
