Against a backdrop of ongoing Covid-19 restrictions, with prolonged home-working, these are challenging times for many real estate sectors: notably office, retail and leisure, writes Victoria Trebilco.
Whilst the pandemic may bring new opportunities to repurpose struggling assets for alternative or mixed-uses, it also reminds us of the complexities of achieving a successful repurposing project.
The pandemic challenges whether our current “traditional” real estate models can continue in future. Will areas of the city and high street become community or education focussed, with less emphasis on retail and office use? Retail to residential conversions are already well-documented. Is there scope to convert existing under-used sites to meet the increased demand for the science and technology sector? Can struggling out of town retail be converted to last-mile logistics hubs?
For the willing investor and developer, there are certainly opportunities. But the art of repurposing real estate does not come without its challenges. In addition to the usual planning hurdles:
- There is no ‘one size fits all’ approach. Location, demand and local infrastructure must all be carefully analysed to determine the best long-term use of a property. We currently lack data about repurposing to help streamline this initial analysis phase.
- Success invariably depends on the right collaboration between the private and public sector. Any successful scheme must have the support of the local authority, who will want to ensure local needs are met, together with the ability to tap into relevant private sector expertise.
- Economic viability remains key. Developers must carefully weigh up whether the repurposed scheme will be worth more as offices, retail or residential. The conversion of out of town retail to last-mile logistics has potential but is currently held back by the fact that retail rental values are typically higher than industrial, making such projects not economically viable.
- Sustainability considerations are becoming ever more important. To ensure their redevelopments are future-proofed, developers must give detailed consideration to the project’s environmental impact ranging from big picture considerations, such as whether to refurbish an existing building or embark on a complete redevelopment (the latter having greater environmental implications), to the finer design details of a new scheme.
- Perhaps the most challenging element, thrown into sharp focus by current times, is the time taken for projects to come to fruition. There is a danger that by completion, the market and demand for the intended use may have changed. Repurposing as a kneejerk reaction to the pandemic may be revealed to be a foolhardy decision in a few years. Horizon scanning is key.
The pandemic aside, the long term success of repurposing projects lies in incorporating sufficient flexibility and a good mix of uses so that a development can be easily adapted to subsequent market changes. Of course, the concept of the mixed use scheme is not new and there are numerous recent examples of schemes with a strong blend of uses. The Great Northern development of a former warehouse in Manchester by Trilogy, for example, has combined offices, food and drink, retail, entertainment and lifestyle uses including a cinema and gym. An innovative mixed use development at the site of the old Nestle factory in Hayes combines both industrial and residential uses, seeing warehouses constructed alongside 1000 new homes. Developers must continue to think creatively to meet changing needs.
So, while the current climate brings real opportunities for repurposing struggling assets, there are complexities to be overcome. Long term success will lie in thinking creatively, sustainably and flexibly to ensure that such schemes can adapt to often fast-changing market forces. It will be ever more important for investors and developers to work closely with local authorities to achieve beneficial planning outcomes, which allow for just that.
Victoria Trebilco is principal associate at Mills & Reeve