The overwhelming theme of 2020 has been one of change. As we move into 2021 we have reflected on events and what this means for our marketplace going forward, identifying trends that are here to stay.
Owners and occupiers have been able to rely upon a corporate approach for a long time. Occupiers in many cases dictated how they wanted the consumers shopping journey to take place. Owners have used balance sheets as a primary factor in tenant selection.
The customer really is king and understanding their needs is now everyone’s shared priority. Those businesses that do not will join the list of failures. Owners must consider how and why a place is relevant to its catchment and make occupier choices based on aligning these. This approach creates sustainable reliable income for both parties.
Work Near, Not at Home
A forced change of circumstances has caused employers and employees to reflect on their relationship with the physical office.
There is general agreement that a return to a 5-day working week in a central office, as was commonplace, will not return. Whilst home working has been embraced and many myths dispelled, for the majority their working environment is compromised. Spare bedrooms, kitchen tables, wrestling with communal space in shared houses, a lack of social contact, these have been a necessary concession as we work our way through the pandemic but not a long-term solution. These arrangements for many have not been beneficial to mental wellbeing and that is a responsibility shared with the employer. Faced with the prosect of these arrangements for most of one’s career there is already understandable pushback.
From an occupational point of view this drives the narrative of smaller independent co-working spaces becoming a regular additional town centre use. Equally, many larger businesses are considering a central hub approach, supplemented by an increasing number of suburban/ regional spokes.
Co-working or spoke offices are in town centres for their accessibility, diversity of use and broader cultural appeal to the end user. People using these spaces interact with other town centre occupiers as a secondary function ensuring their vitality.
As people become less frequent visitors to a city centre office there is reflection on the need to live in urban locations with a short commute. The tolerance for a longer journey time, undertaken less frequently, especially for those with families is significantly increased. The move to suburbs and beyond is well documented and demonstrated by significantly rising house prices.
This decentralisation is driven by a desire for increased space, gardens, schools and access to countryside and family. The desire for the urban experience however does not diminish, particularly in respect to retail and food & beverage experiences. Homogeneous ‘clone’ operators don’t cut it. Urban occupiers will identify this trend and, in some cases, follow their audience. There is also an opportunity for (re)invention by national and regional operators.
Stakeholders and owners must recognise this trend and respond to it by providing the environment, places and occupational model to accommodate it.
This is an opportunity to provide true engagement and loyalty.
City Centre Evolution - Cultural hubs
The city centre’s purpose as an employment hub is not going to wain but the frequency of visits for this reason will reduce. To an extent the office population was a captive audience and whilst only one component of the visitor spectrum it was an important and reliable one.
To address this loss, cities need to re-examine their purpose, emphasise and grow their cultural appeal. In doing so this amplifies the need for other commercial uses to sit alongside. Most importantly cultural expansion underpins the ‘why’ to city centre living. This is especially true for younger generations moving away from home. It is the vibrancy this demographic, and brutally their propensity to spend, which will support the progression of our city centres.
The Car? A Green One to Share Please
Dependency on the car, certainly your own car, is diminishing. 75% of all adults in the UK hold a full driving license but for those in the 17-20 age bracket this reduces to just 35%. Cost is the most cited reason for choosing not to learn to drive however this must be balanced by available alternatives. Ride hailing apps such as Uber who have 3.5m subscribers in the UK and count 45,000 drivers in London demonstrate an increasing comfort from people to rely upon an on-demand solution for their transport needs.
The government ban on new diesel & petrol vehicles from 2030 accelerates a move to electric. Charging becomes an obvious an excuse to visit a place or the forced reason to dwell. Projecting ahead, electric is the gateway to Automated Vehicles (AV’s) which leads to an acceleration of Transport as a Service (TaaS). Whether it is driver or driverless, if the need to park decreases this creates a series of the questions:
The Local Hero
Bifurcation of Place is accelerating. People engage with a place for two reasons; it is convenient to where they live/work or because it provides something exceptional. The latter could be service, environment, culture or an added experience.
The accelerated change caused by the pandemic is driving the relevance of high-quality local centres. These reasons above give rise to more people spending time where they live. The captive audience has moved. The reasons for using their local centre are varied and shopping is ancillary rather than primary. Work, education, health and leisure are all providing the magnetism. This diversity provides a healthy mix and gives a place purpose and long-term vitality.
BUT this does not mean people want everything locally. Diluted versions of a ‘big place’ are just that, weaker. These towns and places occupying the middle ground (and there are plenty across the UK) are vulnerable. Their purpose has been grounded in a comparison-shopping offer comprising many of the squeezed middle occupiers who have or will fail. These homogenous locations offer little to identify with or take pride in, resulting in less frequent engagement.
These are the places in need of reinvention to rediscover their purpose. But to do so there has to be an acknowledgement of the situation together with a coherent plan for rehabilitation. This success often hinges on having a custodian of place who creates and then curates the vision, engaging with all stakeholders, owners, occupiers, local authority, residents, BID’s. Fragmented interests must be brought together to create value for all stakeholders.
Many brands have been reliant on weak middle ground retailers to funnel product to the consumer. This has resulted in significant exposure to a failing department store sector and the loss of brand articulation to the consumer.
There is an increasing exploration of a direct-to-consumer approach using all channels. Brands, particularly those who understand who their consumer really is will continue to grow their physical presence as both longer term commitments and short-term pop ups. Direct to consumer stores increase the draw of a location through experience, brand identity & alignment and a unique proposition.
The Rental Model Will Change
The move to turnover rents has been the go-to phrase for retail property people in 2020, it is the new ‘experiential’! We need to avoid falling into the trap of simply replacing a fixed number in a lease with a percentage. For both owners and occupiers this is not a sustainable solution. The amount paid for occupancy must incorporate the total value of the store. This will be bespoke for each occupier, let alone sector or location. The headline terms for inclusion are:
But if the rental model changes then the whole lease structure needs re-examining; term, alienation, user, security of tenure. Without a wholesale adjustment we are simply moving from one broken system to another.
We Think We Have Time....
The pandemic has compressed 5 years of change into 10 months. As a result, there is revolution not evolution. We cannot standstill and contemplate for too long or change will happen to us. Likewise, there is danger in leaping to respond without sufficient thought and insight. Collaboration is key to achieving this, sharing and learning from successes and failures. Coordinating this is essential, an independent approach creates friction and uncertainty, both significant barriers to change.