Much has been said and written about the “death of the high street” in recent times. The decline in high street sales happened quite rapidly after the recession hit in 2008 and Britain’s high streets struggled to recover in line with the remainder of the economy in the years that followed. In the last twelve to eighteen months retail operations in the UK have been beset by a new wave of problems which even the wealthier areas of the South East have not been immune to. The Commercial Property Team at rhw take a view as to what is going on both nationally and in Guildford itself.
The decline of the High Street
Taking a stroll down your average high street in the 1980s or 90s you would have been shocked to discover that many of the stores that had been around for decades would no longer be there in the early part of the next century. Household names like Blockbuster, Woolworths and BHS have closed and Toys R Us, Maplin, HMV and House of Fraser have gone into administration (though HMV and House of Fraser subsequently came out of administration). According to the Local Data Company, the vacancy rate for shops is currently 12.2%, which means a staggering 1 in 8 are empty nationwide.
It isn’t just retailers who are struggling. Banks, travel agents and estate agents are also dealing with increasing demand from online service providers. The restaurant sector too hasn’t been immune to the financial pressures, particularly with the surge in popularity of Deliveroo and Just Eat. Jamie’s Italian has lost a third of its restaurants, Byron has launched a CVA plan and Prezzo is closing 94 of its restaurants, including its Guildford branch.
Despite its reputation as one of the premier retail locations in the UK, the retail doldrums have reached Guildford with several recent store closures including Field and Trek, Jackson & Rye, Maplin, East and the Hummingbird Bakery. A wander down some of roads off the High Street and North Street show a worrying number of empty retail units, many formerly owned by non-chain retailers. A ‘Get Surrey’ article in June suggested that the number of empty shops in Guildford had doubled since January.
Why has the decline happened?
So why are most retailers are struggling in the current economic climate?
- Spiralling rents and business rates pushing up the costs of stores.
- Sluggish wage growth.
- A rise in inflation, which reached 2.7% in August 2018.
- The collapse of the pound post-Brexit slowing consumer spending.
- Uncertainty about what Brexit will look like and the possibility of no deal. Nobody seems to know what’s going to happen or what the effect of Brexit will be going forward.
- The rise of e-commerce and online shopping with many traditional retailers struggling to adapt. According to the UK Cards Association, the average Brit spends £4,611 online a year, more than any other nation.
- Price differential between high street retail and internet providers.
- Lower overhead costs for internet providers.
With the growth of e-commerce, it increasingly appears that people who are out on the street want to buy experiences rather than just products. They want to buy something unique – otherwise why not just order online? There is evidence that high streets are beginning to adapt to the changing landscape with an increasing emphasis on entertainment and leisure over a purely retail experience.
An excellent example of this new trend can be seen in Guildford with the new Tunsgate Quarter development, which markets itself as a “shopping, dining and socialising destination”. The centre houses outlets for a number of forward-thinking and innovative brands who clearly buy into this idea of providing a unique service rather than just a shopping experience. The following are a few examples of this at Tunsgate Quarter:
- lululemon. The fitness wear specialists offer in-store yoga in addition to premium sports clothing.
- Bobbi Brown. They offer make-up tutorials from in-store experts as well as selling beauty products.
- Fitness space. Not just a regular gym, they offer customers an interactive and customizable gym service.
- Cosy Club. They offer informal casual dining, drinking and lounging and describe themselves as “quirky, eccentric and playful”.
- Nespresso. Famously endorsed by George Clooney, they offer coffee masterclasses and an interactive experience for shoppers.
Another strange consequence of the decline of traditional retailers has been the trend of ‘pure-play’ online retailers opening outlets on the high street. These online retailers have previously succeeded in part by avoiding the costs associated with having physical stores. That they are now opening physical stores is an interesting result of the shift in the market and can be seen here in Guildford with sofa.com opening a branch on Guildford High Street. It will be interesting to see if this trend continues.
What does this mean for landlords and tenants?
There are still opportunities out there for retailers if they are willing to adapt to the changing marketplace. Now might be a good time for commercial tenants to move or renew their leases as the balance of power is currently firmly with tenants. With supply far out-reaching demand landlords will be keen to maintain occupancy levels and therefore may be prepared to offer better terms, e.g. lower rent, rent incentives and shorter terms.
There is also another factor at play here. Many large pension funds own retail property holdings, though this has been declining for several years compared to holdings in other commercial property sectors. There will be pressures from fund managers on property management companies to prevent ‘voids’, i.e. properties without a tenant, as the prevalence of these will have an impact on the ability of the funds to pay out pensions if left unchecked. It is far better to have a tenant in place, even if they are paying a lower rent, than a void with nothing coming in at all.
Jack Lightburn – rhw Solicitors LLP