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How Wales’ shopping centres can survive with values ‘absolutely murdered’ and top chains disappearing

On 2 December last year Debenhams’ website crashed amid surging demand, with massive queues reported at its Oxford Street shop in London.

As shoppers jostled to grab cut-price deals on designer handbags, perfume and scarves, it was a sad irony that the increased popularity was due to a ‘blowout’ sale marking the end of the 200-year-old brand as we know it.

A day earlier Debenhams had announced that its 124 retail stores, long a fixture of the UK high street, would likely close after a deal with JD Sports fell through.

It isn’t just high streets that are affected by the loss of Debenhams and the Arcadia Group, Sir Philip Green’s retail empire, which collapsed into administration in November and recently announced 714 more job losses.

More than 600 UK shopping centres, many of which have been part of towns and cities for half a century, are also taking a hit like never before.

For Newport ‘s Friars Walk, which opened in November 2015 at a cost of nearly £100m, the loss of Debenhams was a hammer blow.

Billed as its anchor store, Debenhams was a brand which politicians and campaigners had been trying for a decade to bring to Wales’ third city.



Debenhams in Friars Walk

And its closure was the most severe blow yet to the shopping centre which had already lost the likes of Topshop, Schuh, Flying Tiger, The Body Shop, and Krispy Kreme in 2020.

Currently around 40% of Friars Walk’s units are empty. But the centre isn’t alone in that respect.

Down the M4 in Cardiff St David’s Shopping Centre has lost some major tenants such as Gap, Cath Kidston, Oasis, and Warehouse. Its co-owner Intu went into administration last summer.

In St Catherine’s Walk shopping centre in Carmarthen, which opened in 2010, losing Debenhams added to a lengthy list of departures in the past year alone; River Island, Fat Face, Topshop, Topman, Miss Selfridge, Accessorize, Monsoon, Burger King.

You can read more about the current picture of the retail scene in Carmarthen in this extensive report.



St Catherine’s Walk in Carmarthen during the first lockdown

John Nash, centre manager at St Catherine’s Walk, said it was “very sad” to see Debenhams close, adding that the landlord was “working on plans for the space” and would keep shoppers updated.

Simon Pullen, manager of Friars Walk in Newport, said he was “fully committed to bringing great names to the shopping centre and will continue to explore potential opportunities for the [Debenhams] unit, with announcements to be made in due course”.

Major purpose-built centres with large units cannot rely on big brands like they used to and the current retail situation has left many facing an uncertain future.

We asked some experts what the future holds for shopping centres in the UK – are empty units likely to be a permanent sight? Will shopping centres adapt or will they simply close down?

Nelson Blackley is an independent retail analyst and former retail research associate at Nottingham Business School. He said retailers in shopping centres were facing challenges even before the pandemic.

“The problems that UK retail faced, even pre-Covid, included the high costs associated with physical retail outlets, the ‘costs of occupancy’ including rents, business rates, and service charges, and higher labour costs because of the increase in the minimum wage,” he said.

All this was made worse by reduced consumer confidence and spending power, which began with the 2008 financial crisis, as well as price competition from major discount grocers and single-price stores.

After some 170,000 retail job losses in 2020 more are expected in 2021, with estimates of as many as 200,00 jobs in the retail sector under threat. Mr Blackley said this presents two immediate challenges for shopping centres.

“The first is lack of footfall which has been caused by non- essential retailers being forced to close. In most cases less than 20% of shopping centre tenants are ‘essential’ retail.

“This is as well as millions of office workers across the UK currently working from home and so not travelling every day into the larger towns and cities and spending money before or after work or during lunchtime.

“The second short-term challenge is the increasing number of vacant units caused by retail tenants closing or not renewing leases. If one of the main ‘anchor’ tenants close, as will be the case with Debenhams and Topshop, this has an immediate detrimental impact on the appearance and vitality of the centre and so again reduces its attraction to consumers and so to footfall.”



Dorothy Perkins and Burtons in Swansea's Quadrant will not be re-opening after the current lockdown
Dorothy Perkins and Burtons in Swansea’s Quadrant will not be re-opening after the current lockdown

While smaller units in shopping centres tend to be easier to fill larger units are more difficult.

Mr Blackley said huge anchor tenants are difficult to replace, especially at a time when “most national retail brands are looking to reduce the size of their store estates, rather than open new stores”.

He added that re-purposing large empty units in order to recover income in the short term was not an easy solution either. “Even reconfiguring these large ‘holes’ is not easy and replacing the rental income at a time of over-supply is almost impossible.”

The problems facing major centres before the pandemic were evident even before the loss of Debenhams and Arcadia Group brands.

Last June Intu, the company that co-owns Cardiff’s St David’s shopping centre, collapsed into administration.

It followed repeated warnings from the company about its financial state, having said they had been trying to pay down debts of almost £4.5bn through offloading assets and selling one of its shopping centres in Spain.

Land Securities, which co-owns St David’s – the 12th largest shopping centre in the UK – later issued a statement confirming the centre would remain open.

Meanwhile Newport City Council has paid more than £1m to the Talisker Corporation, the Canadian equity company that owns Friars Walk, in the past three years to cover the cost of rent at the shopping centre.

This is due to an agreement made during the sale of the centre which said that the council would subsidise rent up to a maximum of £500,000 a year if the rent from the centre did not reach a minimum level.

Such developments are indicative of a worrying situation across the UK where many shopping centres have been closed for a large part of the past 12 months.



St David’s shopping centre in Cardiff

‘They’re trying to cash in and sell them now before they drop any further’

According to recent statistics from the British Retail Consortium and Local Data Company’s Vacancy Monitor shopping centres have the highest vacancy rate of all location types (high streets, retail parks, and shopping centres) at 17.1%.

It has left owners of shopping centres facing the dilemma of empty units bringing in no income combined with a large rates bill to the local authorities and an asset which is continuously falling in value.

Alex Butler is a partner with property consultancy Allsop, which has facilitated the sale of a number of shopping centre developments in the UK including the £4.85m sale of the West Orchards Shopping Centre in Coventry very recently.

The guide price for the centre was £5.5m – far less than the estimated £37m it was said to be worth less than a decade ago.

Mr Butler said the values of shopping centres “have been absolutely murdered” over the past 10 years, with many now worth a fraction of their original price.

“We’ve probably sold eight in the last 12 months and we’re expecting a whole lot more over the course of the next year, especially as banks step in, because values today are nothing like they were in the past,” he said.

“The problem is that because of the huge rates bill on the empty units for landlords the money going out to pay the rates to the council for empty units is more than you’re getting in so they’re actually liabilities to a lot of landlords.

“There’s no point in pretending something is worth £20m when they’re actually worth £5m and if you don’t get £5m today you might only get £3mn tomorrow.

“If your biggest tenant is Debenhams and it goes bust what most people don’t realise that if you lose them, who might have been paying you £500,000 a year, you’ve also got to pay the council the business rates so you might be down something like £800,000, for example.

“Landlords are having to pay rates to the council on income they’re not even getting. It’s a double whammy, an absolute killer.”

Mr Butler said many of the UK’s shopping centres are often owned by pension funds and other similar institutions or foreign private equity firms.

“People who might have seen shopping centres as a good investment 10 years ago now realise they are dropping in value regularly,” he continued.

“Now they’re just trying to cash in and sell them now before they drop any further. Their value is going to keep going down as more tenants go bust.

“There are also a lot of American private equity who thought they were being clever five years ago by buying these bad loans thinking they couldn’t go any lower and didn’t realise they were going to keep going down in value as much as they have.

“Other owners are banks who have taken them off a previous owner and appointed receivers in order to get as much of their money back as possible.”



A person walks past closed doors and empty shop windows at the closed down Debenhams store in Oxford Street, London

What will shopping centres look like in the future?

With dependency on big fashion brands unlikely to be sustainable in the future where do shopping centres go now? One option which has been explored is more involvement from local authorities.

In 2019 a whopping £232.35m was spent by UK councils on buying shopping centres. This includes the Whitefriars centre in Kent, which was bought by Canterbury Council for £75m that year.

In September 2019 Stockton-on-Tees Borough Council bought the Castlegate shopping centre and Swallow Hotel in Stockton. Last year it was announced that the buildings would be demolished to make way for a riverside park and offices.

In London work is under way to transform the 55-year-old Elephant and Castle shopping centre into a new ‘town centre’ including nearly 1,000 homes and almost 200,000 sq ft of leisure facilities, shops, and eateries.

But there is debate as to whether this is a genuine way out for shopping centres or a subsidy for a failing model. Councils are not experts in real estate or retail and there is a large financial undertaking involved which can impact on local services if it doesn’t work out.

Retail analyst Mr Blackley said council involvement has brought mixed results but was more appealing than ownership by a foreign company “with no real connection with, or concern about the place, apart from a return on investment”.

And Mr Butler feels councils have a “huge role” to play. “I think councils should almost be obliged to buy the centres given the current prices,” he said.

“The obvious buyer is the council because they hold all the strings when it comes to planning. They have the control.

“I think they almost have a moral obligation to look at buying these schemes because they are so cheap.

“I think they’ve got an obligation to do everything they can to get these things back on their feet – whether it’s investing money, offering attractive rates, or providing help on planning.

“I’m not saying they’ve got to get a cheque book out or throw money around but they can help in so many ways by saying to the buyer that they want to help and aren’t against them. So they’ve got a massive role to play going forward.”

There are more than 600 shopping centres in the UK, most of which were opened in the 1970s and early 1980s.



A man walks through a near empty Westfield shopping centre in London during England’s third national lockdown

Mr Blackley said having a wide range of shops under one roof with a car park attached is not the novelty it once was.

“Shoppers are no longer excited by visiting shopping centres or high streets that all look the same, providing exactly the same range of retail brands and choice of product.

“Increasingly people now want to see a connection with their place – whether the history, the culture, or the unique aspects of a town or city that make the place different.

“Yes they want to find a mix of national retail brands but also local independent retailers who are selling produce originating from the area and businesses that have a real stake in the future success of the town or city.

“I think if you applied that test of ‘Does my retail offer present a compelling reason for the customer to visit, spend money and, most importantly, return?’ to most of the national retailers that have gone into administration and closed over the past few years then the answer would be ‘No’.”

In December the UK government extended a moratorium put in place preventing businesses from being evicted for non-payment of rent until the end of March.

This has put added financial pressure on shopping centres but Mr Blackley said many had already been considering alternative non-retail options including housing, leisure and entertainment, or online fulfilment centres.

And he said he feels that while some centres may close or see more empty units there are other ways they can look to bring people in.

“Landlords are having to be creative with their property strategy such as splitting units to accommodate smaller independent businesses or reworking space for use as a shared office for flexible working.

“Over the past 15 years many of the most successful shopping centres in the UK had already opened leisure and entertainment facilities and food courts as a way of encouraging shoppers to visits and to ‘dwell’ for longer.

“At present, with social distancing, these are of course not open but it’s likely that at some time the ‘social’ aspects of retail, including a visit to a shopping centre with perhaps a meal or a cinema visit as well as some shopping, will return.

“There is no doubt that some shopping centres will close or their owners fall into administration.

“It happened to Intu last summer and although many of their centres are now under new ownership it does demonstrate the fragile nature of the asset: debt ratios during a period where the value of shopping centres has plunged and their rental incomes have also fallen.”



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Mr Butler said more shopping centres are already being sold to developers for multi-use purposes including residential units and leisure. But he doesn’t feel many will close down completely.

“Not only is it creating value by having residential, it’s creating more people living in a town centre which will create more footfall for the shops.”

He said one Debenhams UK store has recently been sold and is set to be developed into a food and drinks market with bars and restaurants.

“You’re going to lose a lot of shops, yes, but I think there’ll be new ideas coming in like food halls,” he added.

“If rents are more sensible, which they can be if buyers buy the centres for a low price, it will help.

“A lot will become residential, no doubt about it, because why would you have empty shops? But everyone we are selling to has a plan B, whether it be bars, indoor darts, golf – somewhere people can go out for a few beers.

“I don’t think they’ll shut them down. I think there’ll be a change of use which is part-residential and part-leisure. Because people will be dying to go out to eat and drink when they are allowed to after the pandemic.

“It should be positive. If councils are more realistic on the rates payable and planning is done correctly it could be the resurgence of the high street, I think.”

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