Over the last eighteen months, Shoosmiths has been working with Radix think tank, the British Property Federation, charitable trust Power to Change, local government network New Local and the High Streets Task Force on an ongoing project to explore how retailers, local authorities, asset owners and community organisations can better work together to access and use space in our urban centres to support positive social change.
We published a report back in June, A Platform for Places, which featured a set of proposals designed to enable new businesses to launch from premises in our towns and cities, taking inspiration from existing community-focused schemes from around the country that are already helping to drive footfall in underutilised urban areas, rejuvenating stale retail districts and breathing new life into high streets.
The role of residential
The next step in the planned resurgence needs to consider the role the living sector has to play in urban revival.
As we come to terms with the idea that our urban centres have long been oversubscribed to retail and that a rebalancing of asset types is now taking place – a process that started years before the pandemic accelerated it – the need to create greater diversity of tenant is now accepted as an essential part of the solution.
The RICS’s UK commercial real estate impact report (1), published in March 2022, showed that the capital value of all types of commercial assets in the UK nearly doubled from 2000 to 2020. However, since 2018, the value of retail assets, which amounted to over 40% of total commercial real estate value between 2000 and 2013, now represents less than 30% by 2020. From life sciences and healthcare to education and light logistics, this decline has led to a new wave of sectors emerging to plug the gap left by retail. But what of residential?
It seems odd to be talking of residential as being the new kid on the block but, with thousands of homes in our town centres having been transferred into commercial use over the last couple of decades, efforts are now being made to reverse that trend. With research suggesting the optimal ratio between commercial and residential spaces is 0.25 (2), more and more developers are taking advantage of newly vacant or underused retail space to re-urbanise residential and, in so doing, create a more harmonised, economically resilient urban property ecosystem, whilst at the same time supplying a readymade customer base for the retail, leisure and offices that remain.
It was recently reported that the number of BTR homes in the UK is projected to increase fivefold to reach 380,000 by 2032 and become a sector worth £170bn (3), with the majority being in urban centres including Manchester, Birmingham and Leeds, as the most popular destinations following London. Even with the headwinds of rising operational costs, affordability and land availability, this level of predicted growth suggests the residential market will prove resilient through the oncoming economic storm.
This is borne out through notable examples of urban centre repurposing currently happening, including Hammerson’s plans to convert a major portion of its Oracle shopping centre in Reading into 475 new homes for rent; Unibail-Rodamco-Westfield’s plans for 1,225 BTR homes at its Westfield Stratford City site; and L&G and Urbo’s Sheffield West Bar development, a £300m mixed-used scheme that contains 368 BTR apartments.
At a more macro level, a recent survey (4) from Knight Frank showed that 80% of leading institutional investors are expecting to ‘significantly increase’ their exposure to residential assets over the next five years. With the number of full-time undergraduates forecast to increase by over 240,000 in the next five years, the number of over 65s expected to increase from 11m to 13m in the next ten years and with mortgage rates hitting their highest level in 14 years, it is easy to see why the rented residential markets of BTR, student and retirement are attracting so much attention from investors looking to diversify their portfolios.
As such, the UK’s living sector is showing itself to be a white knight, enabling positive urban regeneration that meets social, economic and environmental objectives.
Retail to resi
It has been well trailed that John Lewis and Lloyds Banking Group are entering the investor landlord market, converting underutilised space across their portfolios into residential. Lloyds is said to be building up a portfolio of 50,000 rental homes by 2030 and John Lewis is planning on creating 10,000 rental homes by 2030.
However, while the idea of changing empty shops into occupied homes is sound (helping to meet housing targets, more effective use of space, rejuvenating derelict districts), the process of doing so is not always easy.
Urban repurposing can present numerous challenges including: the cost of renovating what is often a neglected site; the fact that retail values have historically tended to be higher than residential values, impacting on investment yields; and the difficulties of designing a living space from what was once a commercial footprint. There is also the fact that empty units are often dispersed around a town centre, separated by currently occupied units that are owned by various landlords, making viability a challenge with limited economies of scale.
And then there is planning. The introduction of permitted development Class MA in August 2021, allowing for a change of use from retail or office to residential without the need for planning permission, offers a potential route through the planning process. However, there are significant conditions and limitations associated with Class MA (including prior approval requirements on transport, contamination, flooding, noise, and natural light, as well as a requirement that the unit must have been vacant for at least three continuous months). Some local authorities also have Article 4 Directions in place restricting the use of Class MA permitted development rights because of concerns relating to the vitality and viability of town centres.
With this in mind, the meshing of residential with other uses in our urban centres clearly offers huge benefits but it is worth considering the bigger picture, in particular how a new development will interact with nearby existing buildings and infrastructure. Working with local authorities, communities, asset owners and corporate occupiers to understand the overall vision for a place is important if we are to create truly liveable neighbourhoods. In the age of hybrid working/living, the need for flexibility and convenience is only going to grow and we need our urban spaces to work for us in this regard.
Retrofit v redevelop
M&S has famously found itself at the centre of the retrofit v redevelop argument – the retailer claimed that its Oxford Street store could not be modernised and that demolishing the existing structure and developing a far more energy and carbon efficient building in its place would be the most sustainable option. The counter argument was that the demolition itself would emit 40,000 tonnes of carbon and so it would be better to retain and retrofit the existing building.
While M&S is looking to develop the site for retail and office space, the challenge to preserve our heritage assets is happening up and down the country and, with residential being positioned as a core ingredient in our future high street mix, there is a huge opportunity for developers to reuse existing sites to create homes of real architectural interest and value. In so doing, not only does the living sector have a chance to move our towns away from the identikit model of the last twenty years, but it can also lead the way on climate-conscious development, helping to build and create sustainable communities for the long-term.
We need our towns and cities to be places that connect buildings with people, providing access to housing, mobility, retail, workplaces, services, education, and leisure, whilst also being vibrant, inclusive and catering to all sections of society.
Our A Platform for Places report presented some excellent recommendations for how we can move our town centres on from what has been a primarily retail-centric approach to support more community businesses to access space – the next challenge is to look at how we can further enrichen the town centre blend to accommodate the living sector, from BTR and co-living to PBSA and retirement.
As Alexander Graham Bell once said “when one door closes, another opens” – rather than mourn the loss of certain retailers on our high streets, we need to see the opportunities presented by newly available space to grow thriving, new communities with social value at their heart. With React News reporting that €151bn is anticipated to be invested in European living sectors over next five years, it’s safe to say that the market is going to be active.
The high street is not dead but it is being challenged like never before – the return of residential could be just what it needs.
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Disclaimer
This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2025.