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We all knew it but now the evidence is there – our town centres are changing

We all knew it but now the evidence is there – our town centres are changing

Simon Pemberton 21 Aug 2017
Much of my career to date has been in town centres and retail planning. I have amassed extensive experience in completing retail evidence base studies for local planning authorities and project managing planning applications for major town centre, mixed-use proposals. As such, I have a keen interest in the future of our town centres.
Lichfields was recently commissioned by Harborough District Council to update its retail evidence base. This was an update to a retail study that Lichfields had completed in 2013. This update, alongside the many other retail studies that Lichfields completes year-on-year, provides clear evidence that nationally, the composition of our town centres is changing over time. I have taken this analysis further and considered how our town centres have changed over the past decade, based on data set out in Experian Goad category reports, which cover UK town centres.
A number of key trends emerge from this research:
Convenience (food retail)
There has been a recent increase in the proportion of town centre units occupied by convenience retailers on a national average basis. Between 2005 and 2014, the proportion of convenience units has stayed constant at around 8-9%. However, more recently there has been an increase of 2 percentage points to 11% in 2016. 
This general trend is replicated in the proportion of town centre floorspace occupied by convenience retailers, albeit there has been a greater increase in the proportion of convenience floorspace. In fact, between 2005 and 2016, the proportion of convenience floorspace has almost doubled, increasing by 10 percentage points. It is expected that the proportion of convenience floorspace may fall in the future as foodstore operators continue to consolidate their position and focus their requirements on key strategic locations, albeit this may not be reflected in the proportion of convenience units, as these might increase as the focus on quality fresh food leads to more independent convenience shops returning to many areas. 
Comparison (non-food retail)
On a national average basis, the proportion of town centre units occupied by comparison retailers has reduced. In 2005, the national average proportion of town centre units used by comparison retailers was 47%. This proportion reached a low of 41% in 2012, during the global financial crisis. Whilst there has been a small increase in this proportion as the economy has improved, over the eleven years from 2005 to 2006, the proportion of comparison units has reduced to 43% (a fall of 4%).
This change is significant and is mirrored in the proportion of comparison floorspace, with the proportion falling by 4% over this eleven year period.  Based on current and likely future retail and leisure trends, Lichfields considers that this overall trend is unlikely to be reversed, with department stores and high street retailers generally seeking less floorspace, but maintaining or seeking a presence in larger town and city centres.
 
With this change in mind, Lichfields has looked deeper into changes in the composition of comparison retail units, and there are some that are key. In 2005, ‘clothing & footwear’ accounted for 27% of all comparison goods retail units nationally. By 2016, this figure had fallen to 25%. The traditional sector of ‘booksellers, arts, crafts, stationers’ also fell sharply, by 4% over the same period.
Class A3 (restaurants and cafes) and A5 (hot food / take-away) uses
The converse to the decline in comparison retail businesses is that the proportion of food and drink uses in town centres has increased nationally. The proportion of food and drink units accounted for 14% of town centre units in 2005. In 2016, this proportion had grown by 2 percentage points to 16%. The general trend for an increase in the proportion of food and beverage uses in town centres has been well-documented and is likely to continue. 
Looking into this further, it can also be seen that ‘hairdressers/ beauty parlours’ now account for 26% of all units occupied by service uses in town centres nationally, up from 22% in 2005. Likewise, the proportion of ‘restaurants/ cafes/ takeaways’ has increased over the same period, albeit by a lesser amount.
Composition summary
Why the changes?
This confirms what everyone perceives - that town centres have fewer clothing and book retailers and more leisure and service- orientated uses such as restaurants and health and beauty parlours. There are many reasons for this trend in the UK, such as:
  • People choosing to spend more on eating out and other ‘experiences’ rather than on traditional goods;
  • The continuing increase in online shopping which affects clothing and book retailers in particular. According to Experian, in 2016 the proportion of sales in special forms of trading (i.e. non-store retail activity such as mail order sales, some internet sales and so on) as a proportion of comparison sales was 13% and this is projected to rise to 17% by 2035;
  • Although there has been a recent resurgence in book sales, overall, the popularity of electronic books (or ebooks) has led to less demand for town centre floorspace for booksellers, whilst many booksellers with a physical presence in town centres have sub-let part of their floorspace to cafes and coffee shops, further reducing the amount of town centre floorspace occupied by booksellers.
  • The concentration of national multiple clothing & footwear retailers in larger town centres, rather than seeking a presence in all town centres. The general trend is for clothing & footwear retailers to occupy larger units, however, the amount of floorspace occupied by clothing & footwear retailers overall in town centres is down;
  • The pre-recession rise in disposable income and the ongoing popularity of eating out; and
  • Vacant floorspace being filled by lower value uses such as takeaways, charity shops and pay day loan shops.
Why Choose Lichfields?
Lichfields is at the forefront of advising on town centre and retail development. We are town centre and retail experts and act for numerous clients with an interest in retail, leisure and town centre development, including developers, investors, operators and councils. We understand the changing town centre environment and the increase in popularity of leisure uses within town centres. Lichfields has a track record in assisting in the delivery of town centre re-developments and regeneration. We are keen to assist both new and existing clients further. To discuss any town centre planning-related requirements, please contact us.

Image credit: Joe Okpako

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Safely landed? The Mayor’s Affordable Housing and Viability SPG

Safely landed? The Mayor’s Affordable Housing and Viability SPG

Jennie Baker 18 Aug 2017
The Mayor of London, Sadiq Khan, published his Affordable Housing and Viability Supplementary Planning Guidance (SPG) this week. Since coming to office last year, the Mayor has set about expediting key planning documents for London in an attempt to bring greater certainty to a chaotic political environment and to deliver on the promises he ran on during the election.
It is unsurprising that housing is a central priority – undersupply and high prices are common themes that every Londoner would recognise. In his election campaign, Sadiq highlighted two obvious but challenging policies:
  1. to increase house building in the capital (he cited the need for 50,000 homes per year); and
  2. to set a target of 50 per cent of homes to be ‘genuinely affordable’.
Both of these goals are ambitious at the best of times, let alone in today’s period of political and economic uncertainty. To try and achieve these goals, the affordable housing and viability SPG sets out a range of measures that, according to the Mayor, will expedite planning for housing and ensure a higher – and more consistent – level of affordable housing provision.
Land is the key initial input into housing development – without it, homes will not be built; without a steady supply of land in the system, housebuilders can’t prove their investment worth to shareholders. The value of land – and therefore how it is bought and sold - is determined by a myriad of factors including: proximity to infrastructure; proximity to jobs; neighbourhood desirability; and the value of the homes that could be built on-site, to name only a few.
This last factor is important – simply put, the sale or rental value of the homes that are built after years of risk and development needs to exceed the costs and provide a return to mitigate said risk. Combine this with the need to build affordable housing – often where public grant for these houses is significantly lower per unit than it has been in the past – and you have a recipe for lengthy discussions about trade-offs of competing interests which slows development and increases risk.
A policy that won’t make headlines but gets to the root of housing development is that of measuring land value - typically, if the residual land value (i.e. the total income from house sales/rent minus construction costs, fees and profit margin, thus leaving the residual value of land value) is equal to or higher than the benchmark land value (below which it is deemed that no reasonable landowner would want to sell), then the scheme could be considered ‘viable’. Therefore, how we value the ‘benchmark land value’ is crucial to determining viability.
The Mayor wants developers to use the ‘Existing Use Value Plus’ (EUV+) approach rather than a ‘Market Value’ (MV) approach in London - essentially, EUV+ looks at the value of land in its current use (industrial, commercial, agricultural etc.), recognises the returns that this use would generate and applies an uplift or ‘sweetener’ to that value, sufficient to encourage the owner to sell. This differs from the MV approach which essentially recognises the value of land based on previous transaction, subject to development plan policies, – i.e. it uses comparable market information to identify that land’s value and emphasises landowner ‘optionality’ i.e. emphasises the need to incentivise the landowner to sell in the first place.
The Mayor believes that under the MV approach, the benchmark land value provided by market information is too high i.e. developers have to pay too much for the land before the landowner is prepared to sell. Indeed, the SPG cites the RICS by stating:
[…] research published by RICS found that the ‘market value’ approach is not being applied correctly and ‘if market value is based on comparable evidence without proper adjustment to reflect policy compliant planning obligations, this introduces a circularity, which encourages developers to overpay for site and try to recover some or all of this overpayment via reductions in planning obligations.

In the SPG Consultation Summary, the Mayor goes on to state:

Reliance on land transactions for sites that are not genuinely comparable or that are based on assumptions of low affordable housing delivery, excess densities or predicted value growth, may lead to inflated site values.
In shifting to the EUV+ model, the Mayor is making two assumptions -  1. the land value that has to be achieved in London under MV to encourage the landowner to sell is too high and is preventing house building; and 2. this high land value is squeezing planning obligations, such as affordable housing, out of consideration. This is a pretty bold intervention from the Mayor.
But the shift to EUV+ won’t be easy and comes with fundamental questions.
First, how is the existing use value of a site determined, that isn’t currently being used? Here, other land valuation methods may end up being the default method, throwing the shift in London up in the air.
Secondly, the uplift (the ‘plus’ in EUV+) needs to be set at a suitable level – what is that suitable level? The Mayor has set out a range of between 10% and 30% to allow flexibility on valuation but does this provide any more certainty than the existing system?
Thirdly, what about the transition period and dealing with sites where a land agreement has already been reached? Deals that have already been made were agreed under a different set of circumstances – is there a grace or transition period?
Fourthly, how far will landowners be incentivised to sell their land under the new system? They may consider that the uplift under EUV+ is insufficient, and be prepared to hold out in the hope that the policy shifts back in the future and/or a new Mayor is elected and reneges on the guidance. This scenario of ‘who will blink first’ also has repercussions – if landowners do not come forward with land, developers will find it increasingly difficult to secure sites. The impact would be felt on the development industry and could undermine housing delivery.
These concerns are probably why the Mayor has built in some wriggle room - as highlighted above, the 10-30% range of uplift values that could be achieved in EUV+ may help the approach in the guidance to bed-in and help development professionals shift their focus. The Mayor has also indicated that an ‘alternative use value’ (AUV) approach may be used but it a) must reflect policy requirements and b) will only be accepted where there is an existing implementable permission for that use. Where these criteria aren’t met, there will be a greater requirement for development viability proposals to explain why these preferred approaches wouldn’t work on the specific scheme (Paragraphs 3.49-3.52).
Ultimately, the Mayor is trying to ensure that more land is brought forward, more quickly and cheaply – helping developers to build homes (and more affordable homes) quicker - and to squeeze value from the landowner rather than trade-off against planning obligations. However, handling the transition is important. If the guidance’s new approach is too hard and fast, landowners may sit on their land, thus quashing any dreams the Mayor had about delivering on his electoral promises. And yes, councils can intervene and use compulsory purchase to bring forward sites but not everywhere. The key questions are therefore: 1) is the SPG sufficiently robust to achieve the Mayor’s goal of decreasing land value? 2) are the sweeteners large enough to encourage land to come forward and to allay fears housebuilding will dry up? 3) Is the SPG just the beginning of the Mayor seeking to use planning to change land policy, and will the draft Housing Strategy due in September, and the draft London Plan later this year take this approach even further?
Land policy is tricky.

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