Fears mount over empty UK shops

Britain’s high streets face an empty shops crisis as a wave of retailers’ leases begin to expire, offering them the chance to withdraw from many UK towns and cities.

Almost 80 per cent of high street leases are due to expire in the next five years, according to data from property firm Jones Lang LaSalle. This offers major retailers the opportunity to close down unprofitable stores as their leases end.

The corresponding rise in online shopping and increase in fixed costs such as business rates is leading some major retail landlords to estimate that up to half of existing high street stores could be vacated by retailers when leases expire.

“It’s a permanent rolling discussion,” said one senior retailer on lease negotiations.

James Brown, head of retail research at Jones Lang LaSalle said the crunch point was a consequence of the trend in the 1980s to let shops on 25-year leases, and the trend in the 1990s to let on 15-year leases. “There’s a concertina effect going on where a large number of those leases are coming up for expiry,” he said. “In weaker locations, retailers could opt to just walk away.”

High street retailers had a mixed Christmas season, renewing fears that they have not yet fully adapted to changing consumption patterns including the shift to online shopping.

Traditionally, retailers would need to be present in 100-200 high streets across Britain to gain a national footprint. However, the rise of e-commerce means that today, many are focusing on just the top 25-50 locations, according to property professionals who advise retailers on their portfolios.

Retailers such as Mothercare have explicitly cut the number of high street stores to save costs. Others, such as Arcadia Group, the group behind BHS and Topshop, have let the number of their UK high street stores dwindle as leases run out. High-profile retail names going into administration, including HMV and Jessops, have resulted in hundreds of stores closing across the UK.

However, another retailer that has been trimming back stores countered that chains also had to retain a big enough network of outlets for customers to pick up items that had been ordered via the internet, given the popularity of so-called click and collect.

“The answer is to turn your stores into more. They do more than sell stuff at the till. They are a point for click and collect,” said one executive.

Argos, which has 740 stores across the UK, has been emphatic about not shutting stores, arguing that it provides a strategic advantage when it comes to online collection.

Malcolm Dalgleish, chairman of European retail at property consultancy CB Richard Ellis, said that for retailers, lease expiries were an opportunity to come out of underperforming properties, or to negotiate more competitive terms with landlords.

In more affluent centres, where retailers continue to fight for the best locations, he predicted there would be little impact from any lease expiries: store groups would still want to be there and rents would continue to reflect this.

In secondary towns and locations, retailers will often be prepared to remain, but only if they can negotiate competitive rents and flexible lease terms, he said. But it is in the tertiary towns where the damage for landlords will be the most severe.

“Vacancy rates will continue to rise further as the multiple store groups exit these towns, and as a consequence these centres may well wither,” said Mr Dalgleish.

About one in seven shops in the UK are standing empty, with city and town centres in the north hit hardest, according to the Local Data Company. While the vacancy rate in London is 9 per cent, in the northwest it is 20 per cent. In some smaller centres, up to one in three shops are vacant.

Andrew Jones, chief executive of retail landlord LondonMetric, said smaller town centres would be hit the hardest by the forthcoming wave of lease expiries. “The top 30 destinations will be fine, but after that, the landlord’s position starts to weaken,” he said.

If landlords are flexible they can attract other occupiers to fill the empty shops, Mr Jones added, but this is likely to be at substantially lower rents than departing high street chains.

“Rents will fall to new market levels which will allow landlords to attract new occupiers into their space – coffee shops, restaurants, convenience food and, increasingly, discount retailers,” he said.

Other businesses that have expanded in the downturn include betting shops, charity shops and payday lenders.

Small landlords of high street shops will be in for a particularly painful experience, according to Liz Peace, chief executive of the British Property Federation. “These people have taken out a loan [to buy shops] and it is very hard for them to lower rents,” she said.

“That is what is driving businesses out; there needs to be a massive re-pricing in the high street.”

Additional reporting by Andrea Felsted

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Footfall falls 3.7%

High streets lost out in the battle to attract Christmas shoppers, according to new data, writes Kate Allen.

Footfall on Britain’s high streets in December fell 3.7 per cent year on year, figures from the British Retail Consortium and Springboard showed. By contrast out of town shops saw footfall drop just 0.6 per cent, while shopping centres saw falls of 1.5 per cent.

Some of the biggest high street names had a disappointing year as discount retailers and online shopping hit their seasonal sales.

Helen Dickinson, BRC director-general, said: “Rather than making multiple trips to the shops over the festive period, many of us planned ahead for our gift-buying and took advantage of retailers’ investment in services like click and collect so that they could cover all their festive spending at their convenience.”

Northern Ireland was worst hit, with overall shoppers’ footfall down 8.7 per cent. The east of England performed best, with footfall static year on year.