It’s Christmas break and I’m meeting a friend for tennis. I arrive early and have time to kill. Westfield Shopping Centre is nearby and I decide to head over. As I arrive, I realise I might as well convert this ‘’leisure trip” into a “business trip”. I subsequently decide to write this article.
Adventures at Westfield
Focusing on business in a thriving leisure centre is no easy task. To a certain extent, I failed. On more than one occasion, I immersed myself in stores forgetting why I was there in the first place. In hindsight, this is part of the job, in the same way a food critic does not refrain from enjoying food in a restaurant. The highlight of my trip was discovering the Tag Heuer Smart Watch. As I make my way back to the tennis, I conclude a successful experience and reflect on how shopping centres are similar to the retail and leisure sectors. You make discoveries, you have social interactions, and you have experiences to share. The main difference is mass complexes versus individual operators.
A couple of weeks after my Westfield trip, I visit Brent Cross Shopping Centre. Expecting a similar experience - it was not. It felt packed, it felt stuffy and the stores did not appeal. My trip doesn’t last longer than twenty minutes. Regardless of my opinion, it was thriving. An observation from both centres is how packed they were and how little vacancy there was. I appreciate that these are two prime London shopping centres and do not represent the wider UK market. Looking into this, Knight Frank reports vacancy rates for shopping centres in the UK varying between 0% and 70%. Yes, 70%! As with the office market, the top end is performing, while the bottom end is struggling. Another observation is the dominance of the big brands, a representation not just of shopping centres but of society as a whole. This makes sense from an investment perspective, as tenants with strong financials drive investment values. A prime example is the recently opened Battersea Power Station. From a property perspective what the developers have achieved is fascinating, but when it comes to the operators within the centre, it is a disappointment. The brands are familiar and there is little new to explore. This is where online and pop-up stores come in handy, allowing boutiques and entrepreneurial brands to enter the market. What we need is more subsidies for local and entrepreneurial brands as well as regulations from legislators.
Focusing on the bottom end of the market, I watched this CNBC documentary “Why US Malls Are Disappearing”. You can guess what it’s about. It is fascinating to see how much emphasis US malls put on their parking spaces. So what do you do with all the parking? The answer should be straightforward; build housing. In reality, this is no easy task as costs, regulations and physical challenges constrain many spaces from developing into residential. A major difference between US and European malls is that European centres have stricter planning laws and are located near population centres (public transport) whilst US centres are located in rural areas (car journeys). This explains the emphasis on parking.
A great example of a shopping centre being revitalised into a mixed-use scheme is Nottingham Broadmarsh Centre. Have a look at the before and (proposed) after. That being said, it is not all good news and there is a long way to go. Having studied and lived in Nottingham for three years, the scheme has enormous potential to revitalise the city and set the precedent for others to follow.
From an investment perspective, it is no secret that shopping centres have been battered over the past ten years. This is due to an oversupply of space, the rise of e-commerce, and more recently Covid. I wrote an article last year about the wider UK investment market and what stood out was how much shopping centre yields have shifted out. This has brought investors back to the table with rents rebased and yields at 8% + appealing to investors in a world of rising interest rates.
As I conclude this article and speak with a colleague, it has become apparent that I have only touched the surface on what is a complex sector. The good news is that I have so much more to learn.
A couple of thoughts from the past month:
Very sad to hear about the passing of Zigi Shipper. A survivor of the Holocaust, Zigi made it his duty to educate others about the Holocaust. His duty now becomes our duty.
Working in commercial real estate, people often misunderstand and assume we are residential experts. We are not - this Savills article is a useful snapshot of what is happening in the residential market.
A lesson I’ve learnt about feedback - always ask your customers! I was considering removing this section from the newsletter, but having asked a few subscribers, they made it clear I should keep it.