Housebuilders And REITs Look To Transform Struggling Retail Into Residential
Good quality, affordable sites to build new homes in London remain hard to come by, in spite of the drop in prices for residential in some parts of the capital in the past few years. But housebuilders are increasingly finding a solution: unloved retail assets.
London and the UK need more homes and less retail. It seems the market has reached the position where existing retail assets are priced at a level that make them suitable to be either demolished or converted into much-needed residential units. The process would be slow and complicated, but ultimately it could remove assets that are no longer needed by the public, and replace them with ones that are.
“A good source of supply is distressed retail,” Barratt Developments Land and Planning Director Philip Barnes told the audience at Bisnow’s London Residential & Affordable Housing Review. “We are building on an old Homebase in Acton, and last week we exchanged contracts on a similar type of scheme in East London.”
Barratt plans to build 364 new homes, 35% of which will be affordable, and a new 25K SF supermarket in the Acton scheme. The 2.4-acre site previously housed a 35K SF Homebase retail warehouse, which the housebuilder bought from a fund managed by CBRE Global Investors in 2017.
Other developers are following a similar strategy of buying retail parks or retail warehouses and knocking them down to build high-density residential. Legal & General bought a site in Wandsworth occupied by Homebase and B&Q retail stores and is building a 1,000-unit, £500M build-to-rent scheme. In Bath, L&G has bought a Homebase store which will be demolished and the 4.5-acre site turned into a senior living scheme with about 270 units, as part of its Guild Living retirement living business. Some of the units will be for sale, some for rent.
The 95K SF Pentavia Retail Park in Mill Hill, north east London, will be demolished and 844 new homes for sale built by U.S. fund Meadow Partners. Of the new homes, 41% will be affordable.
Another trend picking up pace is the conversion of parts of town centre retail schemes into new residential units. This will involve adding new residential to existing schemes, or converting existing retail space to new residential. Given these schemes involve building on or around existing assets in the centre of towns, rather than knocking down retail parks and building residential from scratch, they are inherently more complicated. But this strategy is expected to play a big part in making retail schemes fit for purpose in a changed consumer landscape.
“High streets across the UK are probably about 20% oversupplied with retail space at the moment, and residential is a significant part of the solution for reinventing town centres, both within London and outside,” NewRiver Retail Director of Development Justin Thomas said.
“The big question, particularly within existing town centres, is how you fit that residential volume in and around an existing community. It is important to introduce that residential, and dense residential volume, but at the same time you have to respect what is there already.”
Thomas pointed to NewRiver’s scheme in Burgess Hill in Sussex where it had reduced the amount of retail at the 465K SF shopping centre and added 142 residential units, a 63-bed budget hotel, a library and a cinema. At the 177K SF Grays shopping centre in Essex it is adding as much as 300 new residential units. He said that residential, community uses like libraries and leisure uses could all be complementary, and the mix of uses together could revive town centres.
Gowling partner Vicky Fowler, who moderated the discussion, said her law firm has seen developers pulling back from designs where residential simply would be built on top of an existing retail scheme, and Thomas agreed this is becoming less of a preferred solution.
“You have too much retail so there is a strong case for condensing the retail you do have, and there is still a case for high-quality retail in town centres, we’re not getting rid of it entirely,” he said. “But you need to think about what retail will be like in 10 or 20 years’ time, you need to be careful about putting resi on top of retail, as you don’t know what will be there in a few years’ time. Don’t sterilise the ground floor.”
“At the end of the day, putting resi above retail can compromise both,” Darling Associates Managing Director Chris Darling said. “If you shrink the retail you can create opportunities for more uses and better placemaking, introducing office and residential. So we feel quite positive about the shrinking of the retail offer in our towns and cities.”
Barratt’s Barnes provided a warning on this kind of repurposing, and insight into why the conversion of underused town centre retail to other uses will take a long time — there is no template that can be applied and repeated across different schemes.
“You need to be careful about generalising about town centres,” he said. “There are some town centres that are successful, and where more residential would be beneficial, but there are others that are struggling, and in those the local authority has to be proactive and lead the regeneration of those centres, and be willing to use the powers at its disposal. Where the local authority is just prescribing aspirin year after year, it is not going to work. Every town centre is different, and we need to be careful of a one-size-fits-all solution.”