Edward Cooke on Retail property - estatesgazette.com

Ed and the team are no longer contributing to this blog. Thank you to everyone who has followed it over the past few years. For the latest on retail please follow Attention to Retail, where Ed will also be an occasional guest blogger.

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The Estates Gazette team.

Helen Drury, Policy Advisor at BCSC, discusses the ramifications of increasing rail fares.

 

With the closing of the Olympics on Sunday, we seem to have definitely returned to pre-games life.  On my commute into work on Monday morning, there were glum faces galore and a chaotic train service.  The Olympic hangover has certainly set in.

 

However, announcements this week go beyond the resumption of service as normal - normal for the UK anyway.  Last week the announcement of greater investment in the rail network was welcomed as a way to improve service, help the economy with better transport links and the environment with low-carbon trains.  This week, however, we have found this investment comes at cost to commuters, as government subsidy will decrease. At a time when purse strings are extremely tight, with wages falling in real terms, this will squeeze people even further when the 11% increase comes into effect in December this year.

 

While there is promise of improved service and sustainability of train services, this will not outweigh the impact on commuters.  In addition, no matter how sustainable the trains are, if people are choosing the cheaper car alternative, this will in fact increase emissions.  In fact, as fuel duty rises were scrapped last month in the infamous omni-shambles incident to help hard hit commuters, it gives the signal that this government is not the greenest ever, nor does it even to pertain to be anymore.

 

Sustainability of course encompasses not only the environmental aspects, but society and economy as well; and the impacts on these are perhaps greater than the environmental implications of people using their cars more.  If people are priced out of using the train network, social exclusion will increase and social mobility will decrease.  The Campaign for Better Transport has shown that towns and cities with good rail networks thrive more than those without as they have higher densities, bringing economic benefits as retailers service these populations.

 

So the Government needs to look at the bigger picture - rather than just the revenue gained from higher fares - of a Britain where rail is supported as a primary transport method, bringing together cities and increasing social mobility.  If Osborne can make cuts for fuel to help commuters, it is even more important that he does it for rail travel too.

Helen Drury, Policy Advisor at BCSC, assesses the legacy of London 2012.

 

Last Friday saw the opening of the London 2012 Olympic Games with a spectacular show by Danny Boyle.  Spirits are high for British medals, especially after winning our first two gold medals in the rowing and cycling today.

 

Our aspirations for our competitors are certainly high, but how about the ambitions for the London 2012 Games to be the most sustainable ever?

 

The Olympic stadium stands on what was some of London's most degraded land and contaminated waterways.  In the run up to the Olympics, great efforts were taken to remediate the land; the stadium itself is mostly made from recycled materials, renewable energy is being used to power the stadium and there is a zero-waste to landfill policy.

 

Sustainability does not just mean green though; it also encompasses economic and social improvement as well.  Certainly the increased number of visitors will help to boost the economy in the short term, and hopefully into the long term with increased tourism.  Local Authorities have also been getting in on the action, hosting Olympic events, community parties and sports schemes at schools and leisure centres.

 

I have been impressed with the use of the existing infrastructure in London, with the three day eventing seamlessly slotted into Greenwich Park and the cyclists winding through South West London to the finish at Pall Mall.  But this isn't only special to London, the sailing is taking place at Weymouth Sailing Pavilion and will hopefully drive tourism to the area in the future as it has been showcased across the world with the coverage of the Games.

 

Undeniably, the ambition for sustainability this year has set the bar for future Games very high.  Success, however, ultimately depends on the legacy and how much the spirit of the Olympic Games is passed through to lasting change in the UK.  A legacy strategy has been in place since 2009 and there are high hopes for the success of this; the athlete's village will be converted to housing following the Games and the park will be converted into a landscaped park for Stratford residents.  What I think will be most interesting to see will be how much the sustainability of the site itself inspires other areas and businesses in the UK.  In particular, East London's economy will undoubtedly benefit in the long term from such vast capital investment - including the new sustainable Westfield Shopping Centre - and four weeks of incredible showcasing.  Will this area of London become a bubble of sustainable design and living?

Davinder Jhamat, Head of Research and Education at BCSC

So they have finally arrived - the Olympics.  With all the recent documentaries on TV, particularly the Olympics' Most Amazing Moments, the fastest man on the planet - Usain Bolt, the BBC evening news coming live from the Olympic village and more, with all the excitement getting a tad too palpable, something struck me. 

There is a long list of male athletes (not necessarily Olympians) I can name as being the greatest athletes of all time.  To name a few:

Shopping centres are large assets, more often than not in town and city centres (contrary to popular belief and press commentary). They are essentially businesses that require constant investment.  Indeed, secondary shopping centres need substantial new capital merely to maintain their appearance and retail offer, and even more is required to turn them around.  BCSC has been talking about the importance of value-added asset management skills as paramount to improving, and indeed maintaining value since we started exploring the impact of economic conditions (and round 2 of recession) since 2009.  Through our work we established that of the c 820 shopping centres in the UK around 155, or 1 in 5, were at risk of defaulting on loans provided by banks to purchase these assets, which by our estimates was just over £10 billion worth of shopping centres.

Helen Drury, Policy Advisor at BCSC, outlines the obstacles preventing greater energy efficiency in the UK. 

Amid the recent omni-shambles of government u-turns, delays in announcements on renewables policy and a re-defining of a green tax, it seems to me that George Osborne is actively trying to kill the Green Economy.

In a report published this week by DECC and undertaken by McKinsey, significant barriers to improving energy efficiency in the UK have been identified. 

While there is great potential for improving the building shell of commercial buildings, significant barriers to uptake remain. 

For me, two points from the report really stuck out: Firstly, the complex and constantly evolving policy landscape is having little impact on realising the potential for abatement; and secondly the split incentives for landlords and tenants are causing significant barrier.

The UK climate change policy landscape is constantly evolving and is seen as overly complex by the respondents to the research. Government policy interventions are falling short of its potential. For example, for building energy efficiency, policy is expected to only deliver 3% of the potential.  At the same time, it is estimated the CRC will only deliver 1TWh of the 57TWh efficiency savings potential in the commercial sector. Businesses want certainty, but they also want simple policy drivers that they can understand.

The report also shows that government still has not got to grips with the more complex nature of energy use in the retail property sector where the majority of commercial property is leased (61%).  At the same time, with payback periods for energy efficiency improvements averaging 5 years and investments decisions typically made for a 2 year payback, there are issues around incentivising the upfront cost.  This compounds the issue of a split incentive as businesses are less likely to invest in long payback improvements that they do not directly benefit from.

The government must take these messages on board.  We have been calling on government to simplify this complex and confusing landscape.  A first step will be for the Government to replace the CRC with a simplified tax and combine this with GHG reporting which will increase awareness at the board level.

Davinder Jhamat, Head of Research and Education at BCSC, questions whether Heathrow is being left behind by its European competitors.

 

Over the last couple of months I have been following the Heathrow airport discussion with interest.  Contention over Heathrow's extra runway and the fact that by the turn of the decade Heathrow will lose its competitive position as the top global airport.  COMAC, China's biggest aerospace company is choosing to base its European headquarters in Paris rather than London because of the French capital's better air links.  Tourists are choosing other destinations to holiday as Heathrow is proving challenging to access.  London has a lot to think about.

 

A few weeks ago I was reading in the Evening Standard about Richard Solomons, Chief Exec of Intercontinental Hotels, who was quoted as saying that the Germans and French are "running off with customers".  Germany has nine times the number of Chinese visitors compared to the UK.  France has six times.  So what is the problem?  According to Solomons it is not just an accessibility issue at the point of entry into a country, but a visa and security issue which the UK has fortunately / unfortunately got plenty of (depending on where you sit on this matter).

 

 

With the Olympics just around the corner, it will be interesting to see how things pan out.  One suddenly shivers at the thought of our guests arriving at Heathrow and being stuck in customs for hours - and that's before they even tackle the London tube system.  The press, I suspect, will have some fun with this!

 

On a positive, Birmingham International Airport is on the other hand extending its runway.  And in supporting the impetus, recently the Chinese firm NVC Lighting Limited, a subsidiary of China's largest lighting manufacturer, is expanding its UK base near Birmingham.  Accessibility has a lot to do with it according to the firm.

 

A Tale of Two Cities on the issue of airports.  One city is losing its competitive advantage; the other benefitting and bringing new business to town.  Whether accessibility is a point for businesses or tourists, both are customers of the UK economy and consequently our retail sector.  The concern is that we could / are driving business away unless this point is dealt with, particularly for London.  

 

I wonder if Heathrow will do an exit survey in acquiring customer feedback as they leave the Olympics and how the debate will take shape thereafter. There is not an easy win on this, depending what side of the fence you stand on.  But the equation is simple:

 

Tourism / International Business = Retail = Jobs!

Helen Drury, Policy Advisor at BCSC, comments on Nick Clegg's long awaited announcement.

At the Rio +20 Earth Summit Nick Clegg yesterday announced the intention to make GHG reporting mandatory from April 2013.  This has been a long awaited announcement following a consultation in June last year.  At the time, there were mixed views from stakeholders on whether the government should mandate on GHG reporting and what followed was a year of behind-the-scenes negotiations and detailed assessment of costs.

The announcement was broadly welcomed yesterday with a growing number of groups, BCSC included, welcoming the decision as a step in the right direction of managing GHG emissions and raising awareness.  There is a also a growing consensus that the introduction of mandatory reporting now further makes the case that the CRC should be replaced with a simplified environmental tax, possibly through the Climate Change Levy (CCL) and complemented with GHG reporting instead of a Performance League Table.

So, now the announcement has been made, what does this mean for business?  At the moment, only companies who are listed on the London Stock Exchange are required to report on their GHG emissions in their annual reports to Company House.  Defra will then review the case in 2015 with a view to extend the regulations to all large companies in 2016.  This seems like a sensible approach to me as listed companies are likely to already be reporting and will be able to disseminate best practice to large companies as they are brought into the mix.

It is not yet clear exactly what the reporting requirements will be, but looking back at the Defra consultation proposals from last year, it is likely the following will be need to be included in the report:
•    Organisational boundary, but it is still unclear whether type of boundary setting will be flexible or stipulated
•    Overseas emissions, in order to limit 'off shoring' of emissions
•    The six Kyoto Protocol gases
•    Scopes 1 and 2 but not 3 which is recognised as being significantly more difficult to calculate
•    An intensity ratio of your choice
•    The report will need to be included in Director's report of the annual report
•    The methodology used for data collection

Defra will consult on the Draft Statutory Instrument ahead of the implementation in April 2013.

Alistair Johnstone, Associate Director at CBRE Ltd, discusses the issues facing Britain's  Secondary Shopping Centres. 

"Polarisation" and "lack of prime stock" are two current and commonly used terms across the commercial property market.  In terms of shopping centres the former is certainly true.  The latter has some truth but recently we have seen some action; Witney, Basingstoke and Meadowhall are each very different animals but to varying degrees are considered prime and show conclusively that if a scheme ticks the right boxes there remains a good depth of interest. 

Where a scheme falls short and becomes more secondary the world is a very different place.  Of course "secondary" describes a wide range of quality but even at the upper end of the scale, investor interest is weak.  There is no shortage of recent examples where centres have been brought to the market but subsequently been withdrawn with vendor and purchaser expectations sometimes miles apart.   

Polarisation is no surprise in a market downturn but there are additional reasons why it is so extreme in shopping centres.  A number of factors over the past 25 years have permanently changed the landscape for shoppers and perhaps go some way to explaining the divergence.  Starting with super regional shopping centres (the first being The Metro Centre in the mid 80s), then larger format  American style supermarkets (pioneered by ASDA and Tesco in the mid 90s) and most recently the growth of on line sales have all lead to increased competition for consumer cash, as recently set out in BCSC's empty shops research report.   Shoppers appear to have embraced the convenience of these new offers and thus far a big casualty is local secondary centres.

Retailers have responded with a move from high volumes of stores throughout the UK to concentrating and consolidating their stock into larger modern formats where trading remains strongest.  This trend is being particularly highlighted by the ever increasing number of tenant administrations: Peacocks, Barratts, Game, TJ Hughes, La Senza, Millets/Blacks and Habitat to name but a few have all entered insolvency and left a trail of vacant stores in their wake.  This has affected both prime and secondary schemes but the depth of tenant demand for stronger centres means that void space can be re let quickly, whilst in contrast, secondary schemes are seeing ever increasing vacancy rates and falling rental values. 

If I was inclined to take an optimistic view then I'd say a new type of retailer could be just around the corner.  Mobile phone shops, coffee shops and pound stores have all at one stage exploded onto the scene at unanticipated levels.  Further a number of internet retailers, such as Amazon, are exploring the possibility of opening local click and collect style stores.  Whilst still new territory, this seems the most promising opportunity for a secondary shopping centre fight back.   However the pessimists amongst us will continue to preach the Armageddon scenario whereby the changing retail landscape has driven an oversupply which will never be satisfied and new entrants will be heavily outweighed by tenant administrations. 

Polarisation of investment markets looks set to continue, with foreign cash that sees the UK as a relative safe haven chasing a limited level of prime stock.  Conversely, would be purchasers of secondary centres are taking a wait and see approach and unless forced sellers come to the table it's unlikely there will be many transactions.  The real uncertainty is the longer term future for secondary schemes especially as vacancy levels continue to rise.  Could it be development to meet modern retail trends or more drastically a change of use?