It is hard to think of a worse time for Britain's battered retailers. Whole chains are closing down, and even where they remain alive branches are getting pruned. Rents are being forced down with threats of bankruptcy if the chains are not allowed to pay less. Philip Green's Arcadia empire, which includes Topshop, is the latest case in point. With every week that passes, the outlook gets bleaker for anyone who runs a shop, and understandably investors are getting very nervous about the fate of the companies that own all that space. After all, a lot of high streets are already virtually dead, and out-of-town shopping centres are increasingly heading in thesame direction.
Take Intu Group, which owns shopping centres in Manchester, Lakeside in Essex, as well as in Spain. Earlier this year it had to write down the value of its portfolio by £1.4bn, which more than wiped out its profits for the year. Hammerson, which owns shopping centres such as Brent Cross in north London, swung into losses this year.
But hold on. A lot of retail space is prime real estate. The landlords just need to start reinventing it and thinking about all the ways it can be used for something other than traditional retailing. Once they do, it will quickly become clear that it is more valuable than anyone realises right now, and might even prove a bargain.
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The property industry needs imagination
And yet, it may not be completely hopeless. In fact, all the property industry has to do is to start showing some imagination. In the United States, Amazon has started buying up half-dead malls and using them as distribution centres. There are a couple in Ohio alone, where old retail premises have been demolished and instead the internet giant is using the space to ship out its merchandise. Others are being turned into depots for logistics and delivery companies, and even more are being converted into industrial units. There will be some conversion costs. But it is a lot better than simply leaving an old shopping centre to turn into a ruin.
How to revamp shopping centres
Likewise, supermarkets have been building "dark stores" for their home-delivery units. Instead of building new ones, however, they can convert old retail sheds inside the traditional shopping centres. The booming home-delivery food industry has been setting up "dark kitchens", where meals are cooked for home delivery, but without an actual restaurant attached. It might be easier to use an abandoned restaurant site at a shopping centre rather than build one.
There are other uses too. Shared office companies such as WeWork, which are providing space for rapidly expanding small companies, could easily take over a department store and convert it. A lot of shopping centres could be turned into housing, along with schools and doctors' surgeries, and of course if only half the space was rezoned as residential space, then there would be lots of new, local customers for the half that remained devoted to retailing and leisure.
Over the next couple of years, the big property companies are likely to be very cheap. But it shouldn't be all that long before the shopping-centre industry becomes a buy. Most of the out-of-town shopping centres are still fundamentally excellent real estate. They have good access to roads on the edge of cities in a country with a growing population and a shortage of land. All it takes is the creativity to adapt to the way the economy has changed.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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