Construction opportunities from surplus retail space

New construction opportunities are emerging from the growing surplus of retail space being left empty or obsolete as consumers increasingly switch to online shopping.

A recent report from the think tank, Centre for Cities, argues that too many urban centres across England and Wales are over-dependent on retail and need to swap shops for offices, housing and public space to improve their economic prospects.

It notes that in the centre of struggling cities such as Blackpool and Newport, retail space accounts for twice as much space as offices. By contrast, successful city centres such as Cambridge and Exeter have more than three times more office space than retail.

Rather than rely on retail, the report calls for action to create a better environment for firms in sectors such as ICT, legal services, insurance and marketing. Nationally, the potential construction tender opportunities from converting this space would be significant.

New ‘city quarters’

Today, some significant retail landlords are taking the initiative to find alternative uses for surplus space. Hammerson, one of the UK’s largest owners of shopping centres, recently unveiled a new strategy which included plans to ‘exit’ the retail parks sector over the medium term and develop new ‘city quarters’. As part of its development pipeline, the group has a land bank of at least 65 acres in prime city locations where it is aiming to combine retail with other lifestyle uses, such as residential, leisure, cultural and flexible workspaces.

By contrast, Hammerson is paring back its investment in new space. The group’s planned £700 million redevelopment of Brent Cross Shopping Centre (project id 16382735) is now reported to have been put on hold.

Meanwhile, the other main quoted shopping centre group, intu – which owns Lakeside in Essex and the Trafford Centre in Manchester - is also looking at alternative building projects. The group recently said that it was ‘actively pursuing’ non-retail development opportunities, particularly around its super-regional centres which included residential, distribution and leisure schemes. Meanwhile, the group remains a significant client for the construction industry with a near-term committed and pipeline of projects worth £441 million, through to the end of 2020.

Wider development plans

The major grocery chains are also looking at wider development plans beyond new supermarket space. Lidl is reported to be planning to develop more than 3,000 homes alongside its new stores around London. The German-owned group is looking at mixed-use schemes that could include offices, hotels and student space. Already, Lidl has announced plans to invest some £1.45 billion in expanding its UK portfolio between 2017/18.

The growth of online shopping is also creating tender opportunities as the larger supermarkets invest to modernise their existing store formats. Styles & Wood, the major interiors/refurbishment contractor, has highlighted the significance of technological change and ‘multi-channel’ operations at the large grocery multiples, as they seek to make the best use of existing assets and drive efficiency.