The changing face of real estate

In the shadow of late-cycle economics and structural changes, investment stories are increasingly local, with more interest in fringe-of-core locations and new gateway cities. There is also a challenge to reinvent assets in unloved sectors.

Shopping centres: The phoenix rises?

Structural changes to shopping habits have been forcing retail reinvention for some time. Shopping centres in particular face challenges, and even successful centres face higher costs of maintaining footfall as customer demand veers towards the experiential. In light of this, not all shopping centres will survive in their current form.

Where can retail reinvention work?

There is a certain amount of correlation between the performance of shopping centres and other assets. For example, in certain areas of eastern Germany, where structural changes relate to depopulation, demand for commercial real estate generally is in decline and successful reinvention is harder to achieve. At the other end of the scale, in the south-east region of the UK and London, residential values above £450 per sq ft create an impetus for reinvention. However, in these locations retail rents remain high while yields are low, making it harder to justify converting property away from retail use. Even where there is demand for alternative uses and retail performance is poorer, there is often undeveloped land in the vicinity, particularly for out-of-town shopping centres in the US. This land does not need additional demolition or redevelopment costs associated with reinventing an existing retail structure.

However, where the demographic and supply story works, a number of developers and investors are considering shopping centres as a source of distressed stock for potential repositioning programmes. City centre locations offer potential for residential provision and in wider conurbations, there is potential for more office space. Hotels, student accommodation and retirement living are also all being considered as new uses for retail space. Specialist sectors bring different operating challenges, but enable the investor to respond to the reinvention of occupier demand away from just provision of space, to the services offered within it.

Westside Pavilion Mall, West LA - being converted into Google offices