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Real Estate Finance Insights

Real Estate Finance Insights

Britain's retail sector has been battered by the Covid pandemic.

With stores ordered to close during lockdown, consumers have been getting their retail fix online. High profile names such as Debenhams and Arcadia Group are among those who have paid the price and unfortunately many town-centre shops may have pulled down their shutters for good.  

The latest vacancy monitor from the British Retail Consortium and Local Data Company reveals the extent of the decline: at the close of 2020, 13.7% of shops were empty. This was the tenth consecutive quarter of rising vacancies, suggesting the trend had started well before the pandemic.  

Challenged with the problem of tackling this surplus space, the Government is proposing to make it easier for landlords and developers to repurpose vacant retail space for housing.  

So-called Permitted Development Rights (PDR) were first introduced in 2013 to allow redundant office space to be converted into new homes. These rights were subsequently extended to other types of property and crucially allow developers to by-pass planning authorities.  

The latest proposals would extend existing PDR to include a larger range of properties, including restaurants and surgeries, as well as lifting the size limits previously in place for medium-larger sized stores.  

As well as regenerating redundant retail space and diversifying the high street, the proposals provide a lifeline for landlords unable to let premises. They are also intended to help the Government meet its housing targets and aid economic recovery. On the surface, it looks like a win-win.  

The plans, however, are not without detractors. In response to the recent policy consultation, the British Property Federation was among those voicing concerns that viable businesses could be forced out of their premises, as residential values tend to be higher. They also felt that the future of town centres should be shaped by local authorities, rather than by ad hoc and piecemeal private development.  

Whatever the outcome of the Government consultation, it seems likely that retail space may start to disappear from our high streets. 

Hammerson, for example, has already signaled its intention to reinvent parts of its portfolio. The real estate investment trust has submitted plans to convert a former Debenhams store at its Highcross shopping centre in Leicester into private rental homes, in partnership with Packaged Living.  

If one of Britain's biggest retail landlords is already making this move, I expect others will follow, irrespective of the outcome of the government consultation.  

Secure Trust Bank has supported a number of developers on office-to-resi (including student accommodation) conversions. Click here for further details of our products and team