Conversion to alternative uses may be the only path for some, but there are other options for the imaginative.
Shropshire is the UK’s largest inland county – a fact of which many Salopians are strangely proud, and I know this because I’m one of them. It is something I will often tell people, alongside a myriad of other titbits about Shropshire being the birthplace of the Industrial Revolution, the modern Olympic Games, Charles Darwin and, according to the people of Market Drayton, gingerbread.
Despite living in London for the past 15 years, at heart I am a Salopian. This part of my life rarely crosses over into my work. Commercial real estate back home seldom makes the news. However, scanning recently through an online copy of the Shropshire Star I saw the headline that the combined value of the three main shopping centres in the county town of Shrewsbury has fallen by 65% over the past two years or so.
Situated in the town centre, an area of history and beauty with more than 650 listed buildings, the three centres were bought by the local council in January 2018. Built in the 1980s, they had grown tired and were at risk of becoming a blight on the town. At the time of the purchase, the redevelopment of the town centre was one of the stated aims of the council – alongside an income return from the investment. While refurbishment work has now been completed, and parts of the centres are much improved, the valuation of these assets has clearly not been immune to the carnage going on in UK retail.
Whether high street, retail parks or shopping centres (big and small), all types of UK retail property have suffered a precipitous fall in values over the past few years – much greater than in the rest of Europe. Not only have we seen declining net operating incomes as vacancy rates rise and rents fall, but the risk in owning shopping centres has increased. Whether it be shorter leases, weaker tenant covenants or rising capex requirements, the sector has become risky and asset management intensive.
I am not in a position to comment on whether or not this has been a good investment for Shropshire Council. However, it does make me wonder what’s coming next. Whether as investors or citizens, we all have a vested interest in finding a way forward for this type of property.