When it comes to real estate investing it's always great to look at the headlines but then delve underneath them to explore what this really means for us investors. Indeed, whilst the headlines can affect sentiment and generate downturns (and upturns) they can also generate unfounded fear which can put many investors off some great real estate investments and which can leave more opportunities for those in the know.
It is in this context that I'm exploring the UK town centre this month and the investment opportunities within it, in 2022 and beyond.
Retail has obviously been the sector hardest hit by internet-led changes in shopping patterns over the past decade and the pandemic has exacerbated this by creating an imbalance between supply and demand in the town centre. Real estate agents, JLL, estimate that between 20-25% of the retail market (or between 70-95,000 shops) are obsolete. Many high streets are now oversized and the key challenge is how to reduce the amount of retail space to commercially viable uses. Changes to shopping patterns and consumer habits are impacting the whole of the town centre. Asset classes such as car parks, offices, leisure have all also been impacted and the buzzword in commercial real estate at present is "repositioning".
Repositioning is moving towards the top of the agenda for many existing landlords. Generally, this means the repurposing of real estate for other commercially viable uses to provide longer and more secure income streams. In town centres, shopping centres and large department stores have the most urgent need to be repositioned. A huge range of uses are being considered - from go-karting tracks to hospitals, and residential and office conversions. Where shopping centres are currently concerned, nothing is off the table. And, of course, much retail is being considered for residential conversions primarily due to the Governments widening of the commercial to residential permitted development rights in England over the last 18 months. However, repurposing large retail of this nature can prove challenging, structurally, as the buildings are not designed to be repurposed - and therefore it isn’t the golden bullet it may at first seem.
However, whilst it is likely that the town centre of the future is likely to incorporate a lot more residential (which will, by its very nature, add to its vibrancy), and commercial to residential can be a highly profitable strategy in the current market, it is possible that a huge range of other uses could be incorporated in town centres such as education, later living, logistics, data centres, life sciences etc.