Retail conversions

Opportunistic funds have, in the last few years, been searching for vacant shops in town centres and other locations that can be converted to residential use. Increasingly, attention is now shifting to the bigger shopping centres, and the acquisition of The Moor shopping centre in Sheffield by a JV between New River and Bravo Strategies III LLC is a good example of this. The price is reported to be GBP41m, at a 9.1% yield (although all yield numbers on retail are now hypothetical).

Such centres are certainly not physically obsolete, but are now increasingly economically obsolete. But they are still very speculative ventures and purchasers need to be wary of over-paying. The land may look cheap, compared to prices paid for greenfield sites, but there are many obstacles to achieving the desired conversion, not least the requirement to obtain planning consent. Town residents will typically prefer their local shopping being retained rather than new housing being provided. In my experience, when structural work is undertaken to shopping centres, assuming that this not going to be a complete demolition job (and it may be, as the site is a massive 28 acres), unexpected issues often arise.

This trend of conversion to residential use in the core town centres, which is clearly gaining pace, represents the biggest change to our town centre environments since the wave of shopping centre developments over most of the last 50 years.We wonder how local authorities are going to respond to the wholesale conversion of their town centres – centres that they spent many years promoting as retail destinations.Merely buying the retail assets – which some have done using government loans – side-steps the issue, because a half-vacant shopping centre is still half-vacant, whoever owns it.