Shop Vacancy rates continue to rise as Multiples shrink

Town centre vacancy rates in Great Britain have risen from 12% at the end of 2009 to 14.5% at the end of 2010.

There are two divides. The North/South divide that shows northern and midland regions well above the national average at 16.5% vacancy and southern regions well below it at 12.3%; and the size divide that shows large centres with significantly higher vacancy than average at 16.5% and smaller centres with around 12%.

The North East, North West, East Midlands and West Midlands all see average vacancy rates for large centres around 19%. Yorkshire and the Humber is higher at nearly 21%. London, the South East, the East and the South West all cluster around 14%.  Scotland stands out with the lowest regional rate – 12.6%.

There is more divergence amongst the medium-sized centres with the highest vacancy in the North East and North West at 18% to 19%. The midlands regions, the South East and the East cluster around 14% along with Scotland while London shows the lowest overall vacancy at under 10%.

Amongst the smaller centres the North West has the highest vacancy at over 17% followed by the North East at 15%.

Yorkshire and the Humber plus the midland regions stand at 12% to 13% while Wales, the southern regions and London are at 10% to 11% vacancy.  The Eastern region is the best performer with under 10% vacancy.

The North/South divide in shop vacancy reported in mid-2010 is large and growing. Big centres in London and the South East particularly are holding up well, while further north vacancy rates are much higher. 90% of the top 25 highest vacancy large towns are in the Midlands or the North, this reduces to 68% for the medium sized towns and 44% for the small sized towns.

And things have got worse over 2010. In large towns average vacancy has increased by 4.8% over 12 months -this figure is slightly less for medium-sized towns at 4.5% and lower still for small centres at 3% – but the uncomfortable fact is that vacancy is rising across the board in a period of supposed recovery in demand.

Of the top twenty large retail centres ranked by vacancy, two thirds are in the North and a further 30% are in the Midlands. Watford is the only large south eastern centre in 19th position. Large centres are defined as those with over 400 shops within the town centre boundary.

The North also sees the lion’s share of the medium towns with over half the top twenty towns ranked by vacancy. Here Dunstable is the highest placed southern town in sixth position.

Only in the small centres – those with fewer than 200 shops – does the South have nine amongst the top twenty towns and even here this balanced against nine northern High Streets.

The outlook for sectors is bleak with retailer failures forecast to increase in 2011. Begbies Tryanor report that 10,250 companies in the retail sector are facing financial distress whilst The Centre for Retail Research expects 10,000 shops to close in 2011. Latest store reductions by Arcadia, HMV Group, O2 and others providence hard evidence of this reduction.

On the bright side supermarkets and discount retailers such as Poundland are planning to open in excess of 500 new stores and create nearly 35,000 jobs.

In 2011 retailers face increasing prices, raised taxes and falling demand. The supply of space, however, remains plentiful and, if research projections are accurate, will increase through 2011.  This would be bad enough if vacancy were low, but, as this report shows, it is already at cyclically high levels.  If it increases further a legitimate question should be whether it will ever fall back to the low levels seen in the thriving pre-recession times.  The re-balanced economy that is the aspiration of the current Government is one in which domestic demand plays a less dominant role, and the traditional High Street is coming under increasing pressure from on-line retailing and demand for larger formats typically only found away from the centre of town.

Whichever way you look at it fundamental structural changes are taking place in UK retail be it at the retailer and consumer levels. The very fact that ten years ago the majority of a multiple retailers stores were on a high street, but now we are seeing a migration from the high street into shopping centres and out of town shopping parks, begs the question of what will fill the high street of 2020 and beyond? A subject we will address in a subsequent report.

That said, encouraging words are being heard from the big food retailers particularly who have the resources to invest across the whole cycle rather than change direction as a result of shorter-term forces.  Overall, 2010 was a forgettable year for the High Street but it looks as though 2011 might be remembered for all the wrong reasons.

Matthew Hopkinson, director at the Local Data Company said:

“This report shows that many dynamics are impacting the health of our town centres up and down the country. The good news is that the rate of increase has remained lower that in 2008/9 but are we set for the national average to remain at 15%?

The sad reality is that the number of vacant shops are increasing with certain areas of the country severely impacted and unlikely to recover. These High Streets will never revert back to what they once were and so the composition of our town centres needs to change to reflect modern shopping needs.

Vacancy is just one side of the coin. Occupancy is also dramatically changing with a greater number of leisure uses taking over the high street along with Pound shops, pawnbrokers, bookmakers, charity shops and hairdressers. Mixed use offer tied in with community is the future of our town centres and as such all involved need to react accordingly for them to have any future at all. ”

Liz Peace, Chief Executive of the British Property Federation, said:

“These figures show the number of small shop owners holding vacant property continues to increase – raising serious questions about the Government’s decision to increase its tax on empty shops from April. A nation of shopkeepers is rapidly becoming a constituency of taxpayers, with the owners of property unfairly taxed on something they are not deriving income from. If we are to revive our high streets we need to retain that money to kick start investment, not see it disappear into central coffers.

Many high streets will never return to their pre-recession days, and given the structural nature of these changes, the challenge for local authorities is to work with businesses – including retailers and landlords – to sensibly manage this transition and to be creative in looking for new roles and uses for empty shops.

This change will seem threatening, but will also provide opportunities to reshape our High Streets with a broader mix of uses. It is important that the voice of businesses is heard in these discussions, and that together with local communities and local councils we redefine High Streets’ sense of place.”

Mark Hudson, retail and consumer leader at PwC, commented:

"The further significant shift in shopping behaviour to online, which is now heading towards c10% of retail sales, is the underlying driver behind the long-term structural change in how we shop and the key reason why shop vacancy rates continue to increase. This, combined with the fact that existing space is not converted to alternative uses as fast as new space is added, is contributing to an over-supply of space.

Now that internet shopping is mainstream, but still growing in excess of 20% per year, shoppers are changing the way they shop – including type and frequency of shopping trips as well as the process itself – how they browse, transact and collect their goods. These trends all point to different roles for stores of the future, with different requirements. For example, easy accessibility for click and collect, large stores for showing off ranges and enabling trials, exciting show stores for brand building and commuter route small stores for top-up or treat shopping.

Ultimately, the direction of travel appears to be in one direction – a reduction in the number of stores with the average store size probably increasing. We expect to see a continuation or even acceleration of these trends by this time next year."

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