UK Cities DNA | Five Great Barriers to Repurposing
Repurposing - the magic bullet for obsolete assets? We've identified and assessed the five great barriers to repurposing in this insights article.
5 minutes to read
- Converting surplus and/or redundant floorspace to other undersupplied property uses may seem a no-brainer on paper, but the reality is often very different.
- There are at least five key divides that any repurposing journey must traverse: Geography, Configuration/Ownerships, Asset Compromises, Planning and Value Alignment.
- Acknowledged as an over-supplied market with significant obsolete stock levels, retail should provide a repurposing blueprint - but actually reveals more of the pitfalls.
- Planning has historically been perceived to be the biggest obstacle, but reform to PD rights has been significant. Value underpins everything – and is the most important factor in any repurposing journey.
Repurposing: a massive industry buzzword, the supposed silver bullet to all real estate’s manifold challenges. If an asset is obsolete, at risk of becoming obsolete or not delivering adequate returns, simply turn it into something else. Job done.
If only it were anything approaching that simple. The logic may be sound – repositioning an asset that is no longer fit-for-purpose in its current guise into another use which meets strong market demand – but the actual realities and practicalities are fraught with complexity.
But if refitting, refurbishing and effective asset management are not the solution to a problem asset, repositioning and repurposing options will need to be explored. The repurposing journey is a long, potentially treacherous one, beset with barriers and requiring meticulous navigation.
Five Great Repurposing Divides
There are at least five divides that must be crossed before any potential repurposing journey becomes in any way viable. In broad terms, these are:
- Geography
- Configuration/Ownerships
- Asset Compromises/Fabric Issues
- Planning
- Value alignment
Geography can often render a repurposing project a non-starter from the outset. In very general terms, failing assets are often located in less-than-thriving places and these are often towns where over-supply is at its most acute. For example, if a place is failing as a retail centre, it may well be failing as a wider town centre.
The fact remains that the town centres that are most challenged and have the highest vacancy rates are not necessarily those with high occupational demand from other uses.
Ownership/configuration may or may not be an obstacle, depending on the nature of the asset. As a rule, large footprint, free-standing, single-ownership, single-occupancy assets are far more compliant to repurposing than those that do not tick these boxes. Within the mainstream real estate use classes, offices are far more likely to do so than retail.
Fragmented ownership remains a massive barrier to many would-be in-town retail repurposing projects.
Asset compromises/fabric issues may pose physical constraints on repurposing ambitions. A great deal will hinge on the scope of any re-modelling that is required. For example, total demolition and rebuilding from scratch may circumvent many of these challenges Most will require some retention of the existing stock, even if only for cosmetic purposes.
Surmountable issues maybe, but ones that will nevertheless impact values, capex requirements and development costs, again ultimately putting pressure on viability.
Historically, planning may have been the main stumbling block, but recent sweeping reform to Permitted Development (PD) Rights and Use Classes Order has rendered it less an obstacle than it may have been previously. From 1 September 2020, there has been a new Use Class (E) to include all current A1, A2 and A3 Classes, alongside B1, D1 and D2 - potentially meaning far greater fluidity between existing commercial classes.
Furthermore, based on evidence to date, the Labour Government is intent on speeding up Planning and, in particular, boosting the supply of housing.
Finally – and most critically – values must stack up to make repurposing financially viable. This is a non-negotiable, but is also often an insurmountable issue. In essence, why would anyone embark on a repurposing journey that ultimately loses them money?
Valuation is, of course, massively complex. Values vary dramatically, not just according to the two obvious measures of asset class and geography, but by the perceived quality, spec, sustainability and risk of individual assets.
The reality is that many repurposing projects, however sound they may appear on paper, with need considerable government or Local Authority subsidy. They just won’t work purely under private sector funding.
Value underpins everything – and is the most important factor in any repurposing journey.
Lessons learnt from retail to date
In theory, retail should therefore be the poster child for repurposing, given that market over-supply is acknowledged in a way that it is not other use classes. But evidence of retail repurposing is still relatively thin on the ground, for a very simple reason – we are only at the beginning of this journey and the process is far more complex than most give it credit for.
[Fig 2: Retail Redevelopment Activity w unit breakdowns]
Probably the best examples of successful retail repurposing projects come from former department stores, opportunities brought about by the demise of Debenhams and retrenching of both House of Fraser and, to a lesser degree, John Lewis.
Most of the ‘repurposing quick wins’ in this space have been free-standing stores in major city centres, such as London, Manchester and Edinburgh, with a mix of alternative uses emerging, most notably offices- or hotels-led, but actually fairly mixed use.
Some perspective
If there is one lesson we have surely learnt from retail, it is that there cannot be a “one size fits all” solution to real estate challenges. Every town centre is different and has its own story to tell. And its mix of uses has to reflect that, as underlined by our analysis of UK Cities DNA.
There are undoubtedly opportunities to repurpose assets – primarily, but not exclusively, offices and retail - to other uses and indeed, we shouldn’t be precious about preserving surplus or obsolete property stock. But the fact remains that the window of repurposing opportunity is perhaps less large and infinitely more complex than many imagine.