Member Article

The UK is facing a series of economic shocks, fuelled by the increased cost-of-living, the Ukraine war hitting the global supply chain, and lasting disruption of the Covid-19 pandemic.

The combination of issues has led to shifts in shopping behaviours, working patterns and residential needs, while also impacting demand for space in traditional retail and leisure districts. Remedial action is needed to deal with these pressures and the resultant damage to UK high streets.

So, how can the public and private sectors work collaboratively to address this set of risks?

Potential of joint ventures

Many high streets in the UK currently provide commercial space where there is no longer adequate demand. This is leaving swathes of shops, pubs, offices, cinemas and other assets either under-used or partially redundant. However, while demand for many of the traditional town and city centre uses may have fallen, demand for other uses, such as for housing and the community, is growing – suggesting that a new blueprint is needed to generate footfall and ease the housing crisis.

The government’s Levelling Up and Regeneration Bill attempts to tackle some of these issues. One of its proposals gives local authorities the right to let high street premises that have been vacant - defined as being unoccupied for a continuous period of one year or for more than 366 days in the previous two years - through a rental auction process.

However, as Dan Hargreaves, a real estate partner at Shoosmiths, says: “Whether these powers will lead to a regeneration of high streets is unclear. A prospective tenant will only want to occupy premises if they can operate a viable business or community service, so such sites shouldn’t be seen in isolation and need to be part of a joined-up plan into which all stakeholders have contributed.”

Lance Cantor, managing director at Metropolitan & Suburban, a developer specialising in mixed-use and residential led schemes, agrees that a holistic approach is required: “It is essential that a masterplanned, as opposed to piecemeal, approach is adopted that will balance existing demand and supply with all available opportunities, and with fresh uses considered for those areas that may otherwise be deemed surplus.”

Cantor added: “When looking at the types of new uses that could or should be introduced into a town centre, it is essential that economic viability is tested and evaluated to ensure that what is being proposed is financially viable and, therefore, capable of being provided.”

With local authority budgets being put under increasing pressure and scrutiny, there is an opportunity for private developers to work collaboratively with local authorities - bringing their development expertise to the table to open up a wider range of opportunities and explore different funding and business models that share risk and reward with local authority partners.

“One option for local authorities looking to develop or regenerate land is to enter into a joint venture with a private sector partner”, says Hargreaves. “If successful, the local authority can not only complete its development, but also generate a revenue receipt from its capital asset that can be used to fund future phases or other projects. The local authority also retains control over the development while sharing risk.”

If a joint venture is to be successful, however, it requires all parties to balance their individual interests, clearly set out the objectives of the project, commit sufficient resources and work collaboratively. It is fair to say that this level of collaboration across town centre stakeholders has often been a stumbling block over the years.

“The issues might be familiar,” Hargreaves adds, “but each joint venture has its own commercial challenges. With a number of high-profile examples of joint ventures having failed in recent years, careful consideration and appropriate due diligence is required at an early stage.”

 

Working together

While there are successful examples in the UK of local authorities working in partnership with private developers, there are also administrative and procedural hurdles that exist. These can, and often do, delay the delivery of schemes. This can add significant, but often avoidable, costs.

Various procedures inherent in the development process, such as procurement and tendering, including OJEU, as well as councils utilising their compulsory purchase order (CPO) powers, can add several years to a scheme’s delivery.

Developers and councils therefore need to explore how they can act legitimately and in partnership to accelerate the development process. For example, there are a wealth of tools that local authorities have at their disposal that can be used in collaboration with private sector partners to drive regeneration, which go beyond the compulsory acquisition of land.

As Bob Pritchard, a legal director in Shoosmiths planning team, says: “From employing powers in planning legislation that requires land or buildings to be cleaned when its condition adversely affects the amenity of an area, through to incorporating heritage assets into a scheme to produce economic benefits, local authorities are equipped to deal with the challenge of urban revival. Local Development Orders also provide a flexible option where fast-track consenting is needed and, when used selectively, Article 4 Directions restricting permitted development rights can encourage investment by curtailing inappropriate uses.”

However, as Pritchard goes on to say: “Successful use of these powers is dependent on interventions being informed by community consultation, underpinned by political support and delivered by a partnership approach that harnesses the skills of the private and public sectors.”

There are also other ways to speed up the development process, as Cantor suggests: “One technique that is being used with increasing frequency is where a private developer acquires an interest in privately-owned land that is situated immediately adjacent to council-owned land, thereby (assuming the acquired land interest is sufficiently large) allowing the developer to potentially qualify as a special purchaser and avoiding the requirement for a full formal procurement process, saving both cost and time as a direct result.”

In situations where compulsory purchase may be required, local authorities are not only required to strictly comply with the many rules and regulations associated with a CPO, but they are also often highly restricted in what they are able to pay landowners.

“CPOs can be a costly and lengthy process” admits Cantor. “However, this is where the private sector can step in as, whilst not having the statutory powers of a local authority, private developers have far more flexibility in what they are able to pay landowners - subject to maintaining viability - and are often able to agree terms and transact at a faster pace. In some situations, this can be a key to unlocking a site and making significant cost and time savings.”

 

Occupier sentiment

Whilst there are undeniably increasing vacancies on UK high streets, it is fair to say that ‘bricks and mortar’ is far from dead, however.

Kirsty Black, a real estate disputes partner at Shoosmiths, says: “There continues to be investment into physical spaces, whether this is by retailers looking to innovate their instore experiences, office occupiers seeking to entice workers back or living sector providers repurposing commercial space into residential. The simple fact is that money is still being spent on physical assets.”

“To be successful, however, collaboration is key,” Black adds. “This might be between existing occupiers, one example being coffee shops opening in office buildings and residential premises or integrated as concessions within retail stores, but an increased focus on all things ESG is apparent. Shared working spaces, urban farms and lending hubs are just some examples of new types of occupier that can deliver vital social infrastructure into vacant spaces at the same time as driving footfall for the traditional occupiers to thrive”.

One project that is addressing this is Platform Places - a town centre innovation programme exploring what more can be done to open up town centre property to a more diverse range of occupiers.

The project group comprises investors, local authorities, large and small retailers and a variety of community entrepreneurs, with the backing of the British Property Federation, High Street Task Force, Power to Change and Shoosmiths. With such a diverse group of stakeholders, collaboration, communication and understanding have been essential ingredients to the project’s evolution.

“Perhaps the key to regeneration of the high street,” Black says, “is not to threaten asset owners with auctioning off their vacant properties, but instead to work with them to open up doors to enable spaces to be let. Community-led developments can potentially open up new opportunities, alongside traditional uses, to revive our High Street to everyone’s benefit”.

 

Business rates

In any debate around town centre regeneration, it is impossible to ignore the issue of business rates.

In recent years, reform to the tax has often been trailed as a potential saviour of the high street and a way to level up the playing field between shops and online operators. And, while the tax may not neatly accommodate the modern retail environment, any reform must ensure it avoids the Treasury being left with a gap in its finances that is currently generated by business rates.

There are calls to consider annual revaluations and linking rates to local property values or business performance. What is clear is that any system that replaces it needs to be flexible, responsive and accurately reflect business performance at a faster pace.

Hargreaves adds: “Effective business rate reform that accommodates the needs of all town centre stakeholders is integral to the re-shaping of our town centres. If we can get this right, residents, operators, investors and local authorities can share in the benefit that comes through investment in public realm and sustainable transport infrastructure. It’s central to the whole placemaking agenda.”

 

Acting now

Solutions to deliver exciting and rejuvenative new developments quickly and cost-effectively need to be found now. This must include local authorities engaging with developers that are aiming to invest time and capital to breathe new life into town and city centres – sharing risk and reward.

Cantor adds: “Local authorities are not just the owners of significant property assets that can be made to generate revenues for the public purse, they also have statutory powers that can be used to promote development and unlock sites. Private developers can offer the funds, skills and experience that can streamline the delivery of sites. The full potential of these relationships is not being maximised. To do so, could be a gamechanger in attempts to boost housing and jobs and help preserve and repair our town centres and high streets.”

Many thanks to Lance Cantor, managing director at Metropolitan & Suburban, for his contribution to this article.

 

Link to article