Written By:

Stephen Springham, Knight Frank

28 Jul 2023

10 minutes to read

Categories: Property Sector Retail Research

Key Messages

• Michael Gove throws out M&S’ proposals to redevelop Marble Arch store

• Perceived as a victory for retrofit over rebuild

• But the situation is highly complex / nuanced

• Juxtaposes short- vs long-term ESG credentials / principles

• M&S apparently without Plan B / compromise solution

• Though it can appeal the decision

• Threats to vacate site may not be idle

• But this will be a commercial / trading-based decision

• Inconsistency between M&S and other nearby development sites.

M&S Marble Arch: a victory for precedent?

To retrofit or to rebuild, that is the question. Any dilemma that Hamlet may have had seems trivial compared to the great property ESG debate.

M&S’ plans to completely re-develop its flagship Marble Arch store were initially approved by Westminster Council, only to be subsequently called in by Secretary of State for Levelling Up, Housing and Communities, Michael Gove. Before being unceremoniously thrown out last week.

A victory for the retrofit faction, one in the eye for the rebuild faction? So it would seem, given the jubilant response of the former in many of the subsequent media reports. In reality, the fact there are ‘factions’ at all is ironically a large part of the problem. ‘Factions’ suggests the issue is binary when it is anything but – it is highly nuanced, neither black not white, but a million shades of grey.

The cases for and against

The nuances of the M&S case were lucidly explored in a previous blog post by my colleague Emma Barnstable.

In a nutshell, the ‘retrofit-first’ faction point to the environmental impact full demolition of the site would have, with ca. 40,000 tonnes of CO2 released into the atmosphere. M&S’ counter argument is that it has explored all retrofitting options and none proved viable and that through a new build, it would create one of the greenest buildings in London, with office and retail spaces achieving BREEAM ratings of ‘Outstanding’ and ‘Excellent’ respectively.

For all its detail, a vastly complex and contentious issue boils down to one fundamental question: is it better of worse to release vast amounts of CO2 into the atmosphere in one fell swoop now (new build), or even more, but over a longer, more protracted timeframe (by keeping an inefficient building in situ)? Expressed another way, is ESG a short-term or long-term issue? On this basis, sympathies may start to sway more towards M&S.

Equally, the heritage argument may hold sway in other redevelopment proposals, but surely not here. Those that defend the store’s Art Deco heritage obviously haven’t looked beyond the only mildly aesthetically pleasing façade to the aggregation of three hideous concrete blocks that sit behind it. Even the most die-hard brutalist would be struggling to find anything of merit in the existing store’s heritage.

The reaction

M&S’ reaction has been predictably (and understandably) vehement. M&S’ CEO Stuart Machin has come out fighting, labelling the decision “laughable” and “utterly pathetic”, adding that the ruling meant that he must now review M&S’ future on London’s Oxford Street.

Machin also took aim at the current state of Oxford Street generally: “When 42 of the 269 shops on what should be our nation’s premier shopping street sit vacant, disregarding the expert opinion and approval of the appointed planning inspector and playing to the gallery by kiboshing the only retail-led regeneration proposal is a short-sighted act of self-sabotage by the secretary of state and its effects will be felt far beyond M&S and the West End.”

Specifically on the retrofit vs rebuild debate: “The suggestion that the decision is on the grounds of sustainability is nonsensical. With retrofit not an option – despite us reviewing sixteen different options – our proposed building would have ranked in the top 1% of the entire city’s most sustainable buildings. It would have used less than a quarter of the energy of the existing structure, reduced water consumption by over half, and delivered a carbon payback within 11 years of construction.”

“We have been clear from the outset that there is no other viable scheme – so, after almost a century at Marble Arch, M&S is now left with no choice but to review its future position on Oxford Street on the whim of one man. It is utterly pathetic.”

Scathing honesty that wouldn’t be out of place in one of our Retail Notes…

What now?

M&S has the right to appeal the decision and may well do so. But at the same time, it’s hard to see it being overturned.

And it also seems unlikely that M&S has a Plan B or compromise solution up its sleeve. Despite Westminster City Council cabinet member for planning and economic development Cllr Geoff Barraclough stating that: “[…] we hope they [M&S] return with a revised scheme which meets the new tests presented by the climate emergency”, M&S protestations more than suggest that all its retrofit options have been exhausted. It seems that it was all or nothing.

All has been thrown out, so we are left with nothing. M&S will continue to trade from its compromised, undeveloped store.

Is its threat to vacate the site an idle one? Impossible to say either way from the outside, but ultimately any decision will be driven by commercial considerations as much as environmental ones. In essence, does the store make enough money now to make it financially viable and will it in the future? Only those that have full access to the store’s P&L and understand the internal parameters of financially viability can answer that question. The notion that a retailer such as M&S “must have a presence on the UK’s premier shopping street” is a fanciful one – if the numbers don ‘t stack it won’t (although, obviously, it does still have the Pantheon store on the other side of Oxford Circus).

The worst case scenario of M&S seeing through its threat to vacate Marble Arch throws up a multitude of fresh environmental questions. It is very hard to see any other retailer taken on the store in its current incarnation. Or any other retailer willing to take it on and retrofit to the dictates of Mr Gove (or whoever holds that position when the time comes). If M&S can’t devise any retrofit options that work, what chance any other occupier (retailer or otherwise)?

If M&S were to vacate, I predict that the store will stand vacant for a considerable time, increasingly going to rack and ruin. Ironically, probably to the point where demolition becomes the only option. What M&S wanted to do ironically becoming the default option.

Cue the retail repurposing cheerleaders. They have been out in force, gleefully suggesting that if M&S were to go, we’d just click our fingers and the site would be transformed into another use. Very depressing to see the hackneyed and blithe “changing consumer patterns” and “rise in online shopping” narrative being trotted out in this context. The simple fact is that Oxford Street would be much the poorer if M&S did not have a significant presence on the eastern side. That may not matter to the repurposing cheerleaders, but I would suggest it does to the overall economy of the West End.

Precedents?

Of course, a cynic might suggest that the decision has political connotations and that Mr Gove is effectively using the M&S case to set a precedent. Which no doubt it will become,

But there is more than a certain irony (word of the day) in other development projects that are merrily progressing in and around the M&S Marble Arch store. I’m personally staggered that the former Debenhams site further down Oxford Street seems to have escaped the whole debate.

Basically, the whole Debenhams store has been totally demolished and is now little more than a big hole in the ground. If memory serves me right, the store underwent massive refurbishment as recently as 2013/2014, the most visual manifestation being the installation of all those small aluminium disks on the exterior. Now just raised to the ground, awaiting redevelopment to host of other uses. Effectively, exactly what M&S was proposing at Marble Arch. I wouldn’t claim to have any detailed knowledge on this, but dropping a store larger than M&S Marble Arch that had undergone a massive refit less than decade ago must surely prompt far deeper ESG concerns, yet few seem to be forthcoming.

The difference between the M&S and Debenhams site? The former is occupied, the latter vacant, which begs the hypothetical question that if Debenhams had not gone bust and was now proposing to do what is happening on its site, would that be allowed? So many more questions than answers.

The debate extends far beyond retail. As do precedents. A stone’s throw from the M&S Marble Arch on Oxford Street stand two office sites that, I believe, were conceived and built at broadly the same time. But have recently charted very different courses. 25 and 55 Baker Street. Ironic as the latter was for many years the corporate headquarters of M&S (then called St Michael House), the former a one-time overspill for M&S and latterly the HQ of House of Fraser.

55 Baker Street has been retrofitted on a number of occasions since M&S moved out in ca. 2004 and is where I am currently sitting as the global HQ of Knight Frank. 25 Baker Steet has been demolished and is currently undergoing total re-development to create a net zero mixed used building. 25 Baker Street effectively representing what M&S wants to do at its Marble Arch site, 55 Baker Street reflecting what Mr Gove wants M&S to aspire to. Which is better / more ESG-compliant?

More questions than answers.

Conclusion

The decision on M&S may set precedents but probably doesn’t answer many of these questions. The retrofit vs rebuild debate will continue to rage and the M&S case may actually fan the flames. As Emma observed in her previous blog “the decision to rebuild or refit will never be straightforward and must remain asset specific. And factor in both short- and long-term considerations and metrics”.

Without necessarily taking sides in the M&S case, it is difficult to see the decision as anything other than a victory for short-termism and precedent, rather than a triumph for ESG and heritage.

Charity Event: Knight Frank Marching for MND 2023

Many of you will know of motor neurone disease, perhaps through personal experience or through the recent high profile cases in the sporting arena with the likes of Rob Burrow, Doddie Weir and Stephen Darby all of whom are fighting their own battles against this unrelenting degenerative illness. It is a rare and terminal illness which causes loss of nerve cells leading to gradual wasting of muscles, paralysis and eventually death, typically within 3-5 years. There is currently no cure and no real treatment. Across the world, research has been making great strides in identifying the different causal pathways and potential treatments but so much more is needed to translate research into effective therapies in time for those suffering to benefit.

Closer to home, Pat Keenan, Knight Frank’s Head of Retail, was diagnosed with motor neurone disease in 2021. It was a crushing blow to someone so seemingly healthy, fit and in the prime of life. And for Pat’s family, the news was devastating (many of you will know he is married with two young children) and so they are, together, facing the awful realities of this disease and an uncertain future. Alongside, James Clarke, Knight Frank’s Head of London Sales in Residential has also been diagnosed with MND and is also fundraising towards the cause.

So the Retail & Capital Markets team have decided to do our bit to attack this beast of an illness by raising funds for the leading MNDA research charity – the Motor Neurone Disease Association – in the hope that it brings the prospect of a treatment that little bit closer for Pat, James and for all of those suffering now and in the future.

For our second event The Knight Frank Team will be walking a marathon along the River Thames in London to raise cash for this incredibly worthy and personal cause on 4 August 2023.

As always, we like to aim high with a £26k target (£1k per mile marched) and we’d really appreciate your help in the form of a donation to get us towards our target. Thank you so much for anything you are able to contribute!

Donate here: Just Giving

Stephen Springham

Partner – Head of Retail Research
+44 20 7861 1236
stephen.springham@knightfrank.com