Mixed Use Developments: A Silver Bullet For The Struggling Retail Sector

January 28, 2019

With demand for mixed development sites set to rise in UK cities, this could be the rescue remedy for the struggling retail sector.

As a result of increased online competition retail spending has fallen back to the 2% year-on-year growth level observed four years ago, with large retailers such as British Home Stores and Toys’R’Us disappearing entirely. The rise in rents and contract length of smaller shops linked to anchor tenants have resulted in a similar trend among smaller firms. Overall, the British Retail Consortium estimates that about 85,000 retail jobs have been lost in 2018.

Finding Ways To Incorporate Retail And Other Uses

Following the demise of the retail sector, UK developers are assessing how they can repurpose struggling retail malls or town centres. Jonathan Corish, commercialisation manager at Savills, suggests many are choosing to target multiple sectors, adding immersive experiences to the purely transactional side of retailing while simultaneously satisfying demand trends. Flexible retail space is being created for example, by replacing some of that space with offices or residential apartments. Other combinations include mixing office workers, residents, leisure visitors, regular events and open spaces, as well as the traditional ‘shopper’.

The notion of “supermix” is another attractive alternative growing in popularity among developers. The proposed Spray Street Quarter in south London’s Greenwich is a great example of a “supermix” development. This combines homes and a new public square, with a cinema, shops, restaurants, flexible workspace and a nursery.

Mixed-use developments are often associated with a relatively lengthy planning process, increases in staff and professional team costs. In spite of this, a new outlook analysis report by JLL suggests increased competition for space due to growing urban populations in UK cities. This competition will give rise to developments that better meet the needs and demands of modern living.

Bounce Back Expected In Late 2019

The same report predicts a slowdown in leasing demand at the start of 2019 due to uncertainty surrounding the implications of the Brexit deal for businesses. Despite this, a bounce back is expected in the latter part of the year. If the predictions are correct, it will support rents throughout the year, keeping demand robust and supply limited. The report expects more UK development sites, especially in London, to have mixed residential and industrial uses, with property refurbishments dominating the market over new builds.

The latter trends and predictions should incentivise developers to overlook existing uncertainty looming over UK markets and carry out a detailed analysis of their existing portfolios. While the retail sector shows little promise of revival, there’s a predicted increase in demand for mixed-use refurbishments. Given that around 78% of millennials prefer to spend money on an experience rather than on goods, as well as the fact that car sales have fallen by almost 7% in 2018, it’s a sign that large retail parks are a phenomenon of the past. Consequently, mixed-use developments are seen as an effective way to provide that ‘all-in-one’ experience so valued by the current population; and the silver bullet to revive the lagging retail sector.

Find out more about bridging loans for mixed-use properties and how Tiger Financial can help.