By Paul Smith, CEO of Touchstone Education:
It’s now more than six years since the Government launched a review of the future of the UK high street.
Some people believed from the start this important initiative would amount to nothing substantial, an attitude reinforced by the then Prime Minister’s decision to appoint as its head, not an experienced economist or a weighty civil servant, but a popular TV presenter.
David Cameron then asked the Department for Communities and Local Government to implement a series of recommendations by Mary Portas – Mary Queen of Shops to her viewers – including the setting up of 27 “Portas Pilots” and 333 Town Team Partners to test different approaches to revitalising the high street.
Last November, a survey of 12 of those pilot towns – each awarded a share of a £1.2million regeneration fund – found that almost 1,000 shops had disappeared during the lifetime of the project. That’s one shop lost every 22 days.
The failure of the scheme was most neatly articulated by Ms Portas herself, who described it as a “weighted PR campaign” that had failed to kick-start growth. In recent months we have seen the collapse of long-standing and trusted high street chains like Maplins, BHS, ToysRUs and, most recently, House of Fraser, along with the continued flight of stores such as M&S and Boots to out of town retail parks.
Yet behind the headlines, another quieter revolution has been taking place in the high street – not in the way people spend their money, but in the way that they invest it.
Many of those who previously banked their savings in residential, buy-to-let properties are now switching their investments into commercial properties, many of them located in the high street.
At Touchstone Education, we run regular seminars across the UK offering advice to people about investing in property. In the past 24 months, we have seen a huge slowdown in demand for places on residential buy-to-let courses and a corresponding growth in demand for commercial investment advice.
There are several, underlying reasons for this change in behaviour but it has principally been motivated by the introduction of a 3% residential property levy on landlords, the ending of mortgage interest tax relief and new stress tests for home loans.
At the same time there are now incentives for property investors to favour commercial opportunities including recently-lifted planning restrictions and a cut in small business’ rates, contributing to an interesting, if counterintuitive trend.
While great swathes of the British middle classes appear to be signalling the death knell for the high street as customers, they are giving it a massive vote of confidence as investors.
Commercial property is an attractive investment for other reasons; unlike with residential buy-to-let, the landlord is not responsible for maintaining or improving the property. That is the duty of the tenant and is included in their lease.
No-one has a crystal ball, and those investors can’t foresee the future of the high street any more than us, the government or any number of retail ‘gurus’ – but, clearly, they believe it has a future.
It’s true that some town centres have been rejuvenated by independent retailers and a focus on culture and leisure and there are some good examples of some town centres and village high streets that have been transformed by smart, niche outlets selling bespoke products and artisan producers of food and drink.
Smart investors in tune with the right brands and high growth business sectors are realising double digit yields and significant capital gains. Taking empty, and often inexpensive commercial property and pre-agreeing a new lease with a growth-sector business, such as coffee shops and food delivery, is key to this strategy.
Altrincham, Greater Manchester, was described as a ‘ghost town’ in 2010. After marketing itself as a leisure destination and refurbishing its local Market, focusing its efforts on local food and drink and investment in its public areas, vacancy rates have dropped from more than 30% to around 8% with a 5% increase in footfall.
But it’s true that such an approach can’t work everywhere. In some of the populous, urban areas that took part in the Portas pilot project – such as Bedford, Croydon, Dartford, Stockport, Stockton-on-Tees and Wolverhampton – the arrival of a few hipster cafes and organic flaxseed sellers will never compensate for the loss of big high street chains like Maplins, BHS and ToysRUs, nor the flight of stores such as M&S and Boots to out of town retail parks.
We also believe that the high street has a healthy future, but we need a properly conceived, executed and funded strategy to make it work. Everyone has their part to play, including central and local government, traders and shoppers.
Traders – and by extension investors in high street properties – will generally take their lead from the habits of shoppers and although more of us are browsing and shopping online, there has not been a straightforward shift from high street to ecommerce.
The conventional wisdom is that there will always be space in the market for ‘clicks and bricks’ which is why we now hear reports of Amazon opening its own high street stores.
The internet is a great resource to see what’s available but there will always be a demand for the social act of ‘shopping’ and no amount of online browsing will ever replace the tactile satisfaction of being able to pick up, feel, try on and sample the physical product.
While 80% of sales are now influenced by online, it accounts for just 15.2% of transactions, according to the Centre for Retail Research suggesting that while people like to browse online, they still prefer to buy in shops.
Five things to remember when investing in commercial property:
- To take advantage of the opportunity to benefit from commercial property investing education is the critical first step.
- Many people are very pleasantly surprised that they can take control of their pension funds and directly invest in commercial property.
- Knowledge of the business sectors in growth is key. In addition to coffee and food delivery which many people would intuitively understand less obvious sectors such as health care, (including doctors, dentists, care homes) child care right through to funeral directors and many more.
- Understanding how to work with the commercial property professionals to make the whole process simple is a major benefit for the investor.
- The commercial property market is structured with a major benefit for the smaller private investor. The large institutional investors and pension funds will often not consider commercial property that is available for less than £2m. Commercial property is available in the tens of thousands and freely available in the hundreds of thousands price range. Supply is good, yields are high and competition is low due to the structure of the market.
Paul Smith is the CEO of Touchstone Education, which runs UK-wide courses offering advice and guidance to investors in property