Intu Administration: Shopping Centres Feel the Squeeze
November 29, 2020
3 min read
What's going on here?
With the UK’s biggest shopping centre proprietor collapsing this year, retail investors need to take quick action to dodge the impact of lockdown.
What does this mean?
“The death of the high street” is a phrase we have become all too familiar with. The last few years have seen bricks and mortar retailers brought to their knees by steep business rates and the boom of online shopping. With more and more of turning to our laptops, rather than shopping centres, online shopping has grown into a sophisticated and efficient industry that’s just too convenient for consumers to resist. A study by the Local Data Company found that the number of retail units in the UK has fallen 7% between 2015 and July 2020.
Naturally, the pandemic has only exacerbated the struggles of the retail sector. In fact, analysts estimate that lockdown and social distancing regulations have sped up the decline of the high street by as much as five years. In June of this year, a real estate investment trust and the UK’s largest shopping centre owner, Intu, collapsed into administration. The forced closure of many of its tenants’ businesses meant that it only collected 14% of total rent owed in one quarter of 2020, and its total debts reached almost £5bn.
What's the big picture effect?
Ultimately this means property investors need to learn from Intu’s failure, and act quickly.
An increasingly popular proposal is to convert pure retail space into ‘mixed-use’ sites, which include flats, offices, and ‘experiential’ attractions like gyms and restaurants. The developers of the St James Quarter in Edinburgh seemed to see this trend coming, as the former shopping centre has opted to include 30 restaurants, flats, two hotels, and a cinema in its £1bn redevelopment. Bosses believe diversifying the attractions at the site is the key to success in the modern climate.
Some shopping centres are even resigning to the “if you can’t beat ‘em, join ‘em” approach, and are trying to save themselves by offering car park space to logistics firms delivering parcels in urban areas. Even John Lewis, a titan of British retail, has been forced to rethink. It has announced plans to develop residential property across 20 of its sites, and almost half of its flagship Oxford Street store will be turned into offices.
Unfortunately, however, this is easier said than done for most. Buying out existing retailers, demolishing the property and redeveloping it again requires a bucketload of cash, time, and patience. Landlords will have a tough time convincing frustrated lenders and impatient shareholders to undertake such a major restructuring.
Perhaps, then, this modern problem requires a modern solution. The Deloitte Center for Financial Services in the US has suggested that landlords could sell data about people’s movements in shopping centres to retailers. Chris Urwin, the director of real assets research at Aviva Investors, agrees that a collaborative, ongoing relationship between landlord and tenant could help save shops. Rather than negotiating a long-term lease and just stepping away, landlords could use turnover based rents. This would give them a vested interest in actively pursuing footfall to centres, and encourage them to provide visitor data to tenants.
Is Intu’s collapse the wake up call landlords need, or is it just the first of many COVID casualties?
Report written by Rory Crawford
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