Wednesday 7 August 2013

Too many shops

Retail units into homes. That's the latest cry. The Week has got in before the minister with its SELL THEM ALL! message. They say the government has given up on the high street. It won't even look at any of the hard bits of their own trumpeted Portas review. Business rates being the most obvious solution to the problem. Instead it went for the easy and almost useless parts. Fancy dress themed days. Street theatre and papering over empty units with colourful images of busy shoppers like some Potemkin village.

But how easy would it be to convert the High Street to domestic use?
Lets have a look.

This examples is from Bromley high street which  is a busy, built up, long established typical metropolitan south London/suburb high street and shopping centre area found in most 15,000+ population towns in the UK. Actually Bromley is much better than most. It has a million+ people catchment. Dudley could only hope for a tenth of that. All images picked at random from google.

Lease for sale.

You can see the flats above. Curtains are a dead give away. Retail stockrooms don't have curtains. Or windows that can open without bars on them. Internal theft being what it is. This is for sale as a going concern. But lets assume it isn't and was an empty.

Easy to convert. Brick frontage same as above. The window symmetry is going to be hard. Might just be able if the door was the other side. But that's an architect's problem. 
The upstairs is two flats already let to students as the uni is across the road. And making it into a student flat would be the best move. No garden and no views. Just a brick yard.
Its not very large, but bigger than many flats in this area. Maybe 800sq ft? The listing doesn't say.

Lack of parking is a problem. Current UK planning laws require appx - 1.75 car parking spaces per bedroom. At least 2 spaces required here. + turning and motorcycle and cycle spaces. Not insurmountable by any means. That massive high street pavement won't be needed if no one is walking on it. Two cars could easily park nose to the glass there. Or 1 space and a small front garden, as with a more traditional terrace.

A similar property. Hayes this time. Similar high street. Two flats above. One 1,000 ft lower unit for conversion. Same problems. Garden and parking and views. Would make nice terrace houses if all the units were converted. But few would buy a 5/6 bed £750,000 town house with a 10ft garden and only on street parking.
So flats it is. At least the gas will already be connected. Very few retail units without cooking/catering have gas. No need. 

Three small offices above the shops. Two person offices. Another typical high street set up. 
Converting the retail to offices would be very easy. Or a garage for two cars and a utility/ storage room? Trouble is it would cost you around £300,000 to have off street parking.
Monaco prices.

Retail to office is already happening on high streets, in a reversal of the last two decades trend. Shops becoming offices. One reason is there are a lot of empty retail units and rents can be as low as a minus figure. The tenant pays no rent but pays the rather hefty rates and service charges bills.  In villages an office in a former shop is even more attractive as the rent and rates are low already. Just blind over the large glass windows. 
Another reason is that once the planning consent for A1/A2 retail to B1/B2 business has been approved there is no further planning approval requirement for B use to residential.

The real problem seems to be cost. All of these shops are expensive to buy. The majority are currently lease anyway. To buy the cheque centre in the middle picture which is freehold is £250,000 + taxes. Then there is the fit out. How much to fit all the partition walls. Kitchen. Bathroom. Flooring. Plumbing. Gas. Complete new brick frontage and windows to rear. Garden. Parking. Chances of there being any heating is remote. The project is same as a total derelict refurb. 

So once the money is spent there is a the least desirable of flats a ground floor one. With no or minimal garden and views of not anything much.  And, as with many high streets, this is on a very busy main road. 

It can be done. But unless the prices come down, which they may well do if the recession never ends and the internet continues to take business, it seems the work involved and investment made may not see the best return.

Of course if you already own the premises then the proposition is much more attractive. Just the conversion costs and rent the flats. But cheque centre was/is paying £1400 a month. Looks to be about £500 pcm over the odds for an average two bed basic maisonette in Hayes. Quite a haircut. More a full number 1 clipper. And if everyone does it,  rents fall.

The internet accounts for 1 in every £10 spent. Supermarkets for another 3 or 4 of the ten. Still leaves 50%+ of ALL shopping in the UK on the high street. High street not quite dead enough yet for the economies to work. Better and cheaper by far for the landlord to just lower cheque centres rent by £250 a month.


Timbo614 said...

Ah, you are back! Last night and this morning I just a got shown a page of Ads after a redirect from Google/godaddy.

On topic, Shops are not dead yet! Many of the little shop now has "internet presence" as well.

Bill Quango MP said...

Hi Timbo.
As you know I've been saying you MUST have an online presence and don't invest in any retail chains with a poor web presence, for years. Years and years and years!

And yet i saw a new shop opening in my 2nd home's village. A village of some 2,500 people, so large for a village but insignificant as a town.

The shop is home made candles and soaps. Very very well done and an expensive fit out of a shop I've looked at a few times. Great three street corner location - prime of prime.

Yet when I asked the new owner what his web page was he said 'erm...we are thinking we might do some online later on.."

Now, I know its a pain to do. But how many expensive soaps can he shift to the 800 odd local homes and the 50 odd restaurants and hotels and B&Bs and such?

His stuff is very good. Looks specialty made. But I've only ever sen these stores in major shopping destinations with massive footfall.

He'll be lucky to still be there next year IMHO.

Anonymous said...

BQ it is well known to anyone who has to put up with " Fancy dress themed days. Street theatre and papering over empty units with colourful images of busy shoppers like some Potemkin village." does absolutely nothing for trade, it just gets in the way of trade, people that go for a circus, like above, are not interested in buying anything. It's case of government not having a solitary clue how ordinary folk live and go about their day to day activities. If government REALLY wants to know what is wrong with High Streets, they have to get up and do some inquiries first hand, it just might shock them, but I am not holding my breath on that one.

Anonymous said...


There was a soap shop in a 10k sized village I was living in back in 2005 or so. It didn't last 6 months.

It's crazy not to have a web presence these days. Just chuck your products up on Shopify or Etsy or Ebay or something. It should only take an evening and you can worry about paying for customised designs and crap later on.

Bill Quango MP said...

Quite so anon. And this shop does look better than most. Not a banker's wife trying out her dream, but a serious endeavour that could attract hoteliers and hospitality.
But without web...

no hope.

I won't tell you about the latest council initiative in a very hard hit high street.

But modern dance- folk - and organic all featured in the title.

Anonymous said...

As far as town centres goes, the best thing is four of five storeys high, with retail and pubs etc at pavement level, offices and dentists on the first floor and above that flats.

hovis said...

A little tangential, I was talkng to a commeercial property developer friend of mine the other day and he was bemoaning that debt structures in place had left many high street rotting. I cant recall all the details but it was interesting to note another hinderance after greedy councils milking business rates, avaricious landlords with ludicrous rents, the impact of the web and supermarkets, oh and the recession.

Seems like its playing the shell game with the odds against you.

SayWhatYouSee said...

"greedy councils milking business rates, avaricious landlords with ludicrous rents"

The problem with that assertion is that business rates are based on rental. The higher the rent, the higher the rates.

The high street is not what the government are aiming at with this 'easier-to-convert-commercial-property-to-residential' guff. What they are aiming at are the vast swathes of empty office blocks in many towns and cities. This cannot be said aloud because dumping this much residential property on the market would crash the rest of the market, but thats exactly whats going to happen.
Here in Manchester I can drive from the edge of the conurbation to the city centre (about 12 miles) without ever losing sight of an empty office block. Housing for thousands here. Tens of thousands, even.
Unfortunately, allowing that to happen would crucify private landlords. And it will.

I have much to say on this issue, and I'll say more later, but what my eyes and ears tell me is this -

Like most of the rest of Europe and the US, the credit boom has left us with a huge surfeit of property. Yes, you read that correctly, there is a huge, colossal, economically dangerous overhang of property (or more precisely debt secured on property) in the UK economy.

If you are swallowing the 'shortage of property' line dont feel too bad; pretty much everyone outside the tent is too.

SayWhatYouSee said...

For my above post, please dont anyone take my word for it. Just ramble on up to Manchester, Liverpool, Leeds or anywhere but London really and you'll see the huge overhang of commercial property and read the stories in the media of a housing shortage.

Incidentally, anyone expecting a large increase in commercial property sales this year would be correct.

That'll signal a 'recovery', wont it? Well, naturally it will and you'll all believe it.

What my little birds are telling me is that Mr Tory, the small businessman is in deep, deep trouble. He has exhausted his funds trying to keep his little factory/accountancy firm/solicitors office going this past few years. He has then emptied his own personal pension fund to the maximum he can to plug the gap... but still there is no pickup in business. He cannot get loans from the bank and he cannot use his property as security.
So what can he do? How is he to survive?
Well now, Mr Tory has some canny advisors who tell him that he should sell his commercial premises to his own pension fund; that way he can access the cash tied up in the property.
Trouble is the valuations on Mr Torys properties are coming in far, far below the book value and without slipping a surveyor a sizeable wodge he cant get enough cash to keep the wife in Mercedes and fake tan for another year.
The pips are starting to squeak, no matter what the newspapers say.....

Bill Quango MP said...

You may have a point saywhatyousee.
CU is the commercial specialist and he's on hols. But commercial values have been rock bottom for years. long before the credit crunch they came undone.

And the rates issue is an issue. Just not the only one. There are streets in Birmingham and Taunton and Oxford that used to be all solicitors and accountants. But they moved out when the rents, and so the rates, forced up the costs and these business realised they could operate from a business park or an out of town location or a much smaller town just as well as on the high street of a major.

They haven't gone bust, just moved away from town centres. And it happened long ago with the rise of the phoneshop.

SayWhatYouSee said...

Bill, I hope you dont mind me replying from the shallow end of a bottle of wine; 1/2 price @ Tesco dontcha know (and if you dont finish it you can unblock the sink with it in the morning).

Firstly, I'll go for the jugular on the 'rates issue'. There is no rates issue; there is a rental issue. Rates are derived from rents. The formula is dictated by local govt but voluntarily entered into by renter and rentee(?).
Much as I love to kick local govt it _cannot_ be blamed for this shitstorm.

The examples I was quoting above as Mr Tory were just side caricatures. I meant middle ranking, middle ability, middle class people who squat on the economy extracting professional fees. Many have 'investments' in small business premises and high street shops and new build apartments. This Tory heartland, approaching middle age, is about to find out who exactly the Tories favour most - their voters or their paymasters; Middle England investors or large corporates.

If the Torys bend to the builders and investment funds, large scale building and commercial-to-residential will be allowed. Johnny England will get crushed on his BTL investments and the green fields he aspires to will be covered in tiny papier mache terraced housing built by the corporates.
If they go for the voters the Tories will continue the squeeze on land and property, choking supply and continuing the crazy subsidies for BTLs.

Neither is palatable, but which is preferable?

To my mind, a brave and radical Tory party should be leading the way to taxing land and property and reducing income taxes. This would prevent hoarding and encourage building, provide a stable taxation base and reward people and assets that work rather than sit on the sidelines. What we have now is 'dole for property owners'.

So what say you tories - more handouts for rent scroungers or less tax for 'hard working families'?

The only solution to this is to liquidate the debts (for which over-leveraged property is an almost perfect proxy) or face a stagnant economy for the next 30 years. Like Japan.

Current policy (as espoused by Carney) is insane.
Not to put too fine a point on it, but imagine we have a dog covered in ticks.
Carney (and the soft left BBC/Guardian/FT media) think both the dog and tick have equal rights and shoul dboth be allowed to exist.
The Austrians (in extremis) think we should starve the dog, hoping this will kill the ticks and teach them a lesson (?!?!)
I, on the other hand, advocate taking the medicine. The ticks must die, that much is clear, but who is going to administer the medicine to the truculent hound? Who will pick the scabs off the erstwhile loyal and docile pet?

rwendland said...

My local shopping street has recently changed for 1 charity shop out of 20ish units, to 3 charity shops. That makes a marked change to the feel of the street, but I suppose occupies some units (rates free) - better than empty units.

I took a look at the accounts of the local charity running one of the shops (handy free accounts for Charity Commission website), and was amazed how little money they made from the shops. I wonder if this is typical.

At the time of the accounts they ran 8 shops (12 now), at a cost of £680k/year, with a shop income of £756k/year. So that's about 11% profit on running costs, even with all the goods given for free! Or £9.5k profit per shop. They seem to pay their shop staff, and paid £185k to a shop management company - don't know if this is typical. NB this is a christian charity, though they don't let on about that to people who use their shops or website, hmmm.

Blue Eyes said...

Late to this. Couple of thoughts. Most high street shops are in former houses which were converted at some point. Should be very easy to convert back if need be.

I clearly don't understand business rates. Why do they not vary with rent? If a space cannot be rented out why are rent taxes due on the space? I always assumed that business rates were a proportion of the market rent? If rents collapse why don't rates?

People need to be allowed more freedom to do what they want with their property. If someone is happy to rent a ground floor flat on a high street with no parking, who are the planners to say "non"?

SayWhatYouSee said...

This is how rates are calculated

In my area houses cost about 250k for an average semi. There is a hairdresser on the market at the moment for 115k. Its a 3 storey georgian/edwardian townhouse on the edge of town. 4 bedder but no parking. Roof terrace but no garden.
As soon as this stuff gets converted the market will go down quicker than a Spaniard in the penalty box.

And that ignores the masses of more modern office blocks lying empty.

SayWhatYouSee said...

Sorry, just found this while browsing -

"Exacerbating the problem for retailers is a surge in the number of conversions of offices into more lucrative residential use, which further cuts passing custom. Figures from property consultant H2SO show a 168 percent rise in the amount of office floor space lost to residential last year versus 2011."

Blue Eyes said...

When I was flat-hunting towards the end of the bubble I kept seeing kebab shops with flats above for sale. I wasn't sure what the catch was. Maybe I made a terrible error.

BE's Grill has a nice ring to it, as well.

The building my previous office was in (built as a house many many years ago) is in the process of being converted to flats. The margins are so huge that the owners have not bothered to chase up their former tenants for dilapidations. Meanwhile within a few hundred yards new office towers are going up.

I confess, I don't really understand how the economy works. Why are the new central towers not flats?

Blue Eyes said...

OK so I've watched the video. Could the problem be that the rateable values are not updated frequently enough?

What was achingly expensive five years ago might be down in the dumps today, especially in fast-moving sectors like retail.

Bill Quango MP said...

Hovis - you might have seen the decisions in the 80's/90's Millennium to sell all the freeholds and lease back the units. It freed up big cash reserves at the time.
It almost killed many majors including Boots and Debenhams who suddenly found their rates/rent tripled or quadrupled and profitable shops became dead losses.

rwendland : Charity shops are the curse of the retailer. Councils love them. They don't attract anybody though. Those figures look low for a charity shop. About 20% is normal.

SWYS - As said in the piece. A conversion shop to office needs planning permission, usually granted.
Office to domestic no special planning under localism law required.

BE: I was always jealous of my friend's maisonette above a computer shop. It was bigger than my flat which was ex LA. His was much more like a house. And he had no drug dealing, swearing, fighting, mental neighbours surrounding him on all sides. Even though he was on edge of the high street it was quiet enough.

Rateable values - you are correct. Many businesses were paying rates based on the 2007 boom prices. The whole system is mad anyway. A tax that does not represent any ability to pay.

Adam Johnston said...

My company is looking to convert unused storage space above shops into residential accommodation. This will mean that landlords will gain greater income from their property, the housing crisis that is prevalent at the moment can be eased as more people can get on the property ladder, and more people will be using the local facilities. It is not an easy fix, however, with less houses being built we must find new ways of housing people. Would welcome comments

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