There is no future in the high street as it stands as a triple whammy of supermarkets, out of town shopping malls and online shopping has squeezed the life out of most town centres. The deepest and longest recession for decades has made the cocktail even more poisonous.
It is now estimated that 14 per cent of town centre shops are empty - obviously, this is higher in some towns*. As increasing number of retailers fall into administration, this gloomy downward trend is set to continue - unless there is a dramatic shift in the use of the high street as we know it.
The shift has to be converting old terraced/semi commercial shops back to residential dwellings, supplying both a well documented shortage of housing with a desire to live in areas where there is an abundance of restaurants and small specialist retailers. Some of the most affluent areas are where there are properties close to desirable boutique shops, bars and restaurants, which people can easily walk to and the future plan for declining town centres could emulate this type of framework.
The fanfare over the launch of the Portas Pilots has died down. A TV programme that was criticised at the time as a PR stunt appears to have been exactly that.
The pitiful amount of funding on offer (£1m to be shared between twelve towns - £83,333 per town) to change the high street was viewed with deep suspicion from the outset in the property world. It seemed that the scheme was no more than a sticking plaster quick fix, rather than a meaningful attempt to resurrect some of our high streets.
So what of the future and where are the investment opportunities?
Relaxed planning rules
There's a growing realisation in town halls and planning departments that regulations need to be relaxed in order to stimulate the economy. New legislation announced in September 2012 aims to slash planning red tape, including sweeping away the rules and bureaucracy that prevent property investment and development.
Rules on the renovation and expansion of shops and offices will be relaxed as ministers seek to boost the economy.
These measures will hopefully create more flexibility on the use of town centres. They could create more affordable homes and boost the economy, too.
Tax breaks on commercial conversions
Investors are being increasingly tempted to convert empty offices, shops and semi-commercial properties into residential dwellings. Property investors expect to make a profit because many are in highly convenient locations.
Tax breaks, expensive business rates and falling office values are also drawing property professionals into this process.
Many town centres also have an oversupply of offices with a large amount of vacant property; a high percentage of which is semi-commercial, such as shops with accommodation above. Smart property investors are acquiring this stock in volume to convert into residential use to take advantage of increased rental yields or sales values.
There are also tax breaks available when converting commercial property for residential purposes. In some cases the Government will refund the VAT paid on some of the building materials and conversion services used.
The flat conversion allowance was introduced in 2001 and is intended to encourage the conversion of empty or under-used spaces above shops and other commercial premises to residential use. The scheme allows the investor to claim an initial 100 per cent capital allowance on the cost of conversion as long as the associated conditions are met.
Are there profits can be made?
If a quicker return, rather than a gradual long term yield, is the objective then there is clear evidence this can be made.
For example, a client of ours recently purchased a semi-commercial property in London for £200k. We funded £110k. The client then spent a further £35ktransforming the property into a two bedroom duplex, which is now on the market for £290k.
This highlights the great opportunities out there for investors if they are willing to take the time and trouble to convert the use of properties. It also illustrates the social benefits available to public sector decision makers who are open minded and fast acting when making planning decisions.
Saving the high street
There is strong political sentiment to make town centres more of a community area. This requires new experiences, interactions and crucially - new people. A high street with an increased population will naturally stimulate the local economy.
Traditional retail is not going to save the high street. Most towns have Think Tanks made up of people from the public sector and local private sector. The key priority for these Think Tanks is saving the high street. Much effort goes into attracting the right kind of destination shopping retailer, hopefully to draw footfall into a town. More effort should be spent on creating new experiences - such as investment in markets, play areas, services, bars, cafés and property schemes.
As the high street adapts and responds to the challenges it faces during the next five years, we are sure to see significant opportunities. These will now be easier for property professionals to exploit. Decision makers with an influence on town centres and the high street will be required to become more open-minded and responsive to ideas from those in the property investment sector.
Chris Baguley's tips for investors seeking change of use:
*Local Data Company www.localdatacompany.com/knowledge
About the author
Chris Baguley is managing director of Bridging Finance Ltd and has worked within the financial sector for over 17 years. Bridging Finance Limited specialises in providing fast and effective short term funding solutions and bridging finance for clients in the professional sector. The company ensures funds from £30,000 to £3million are made available within 24 to 48 hours. Chris is a keen squash player and plays competitively in the North West of England.
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