The town centre of the future

This now needs to be reflected in the built environment. Today, high streets are lined with vacant units as consumers are accustomed to the ease of ordering items to their own front doors. Lower-grade offices are being abandoned, as the trend to work from home has made it even more important for employers to provide a high-quality space to entice people back in.

Our survey focused on uncovering what consumers from the UK and around the world want from their town and city centres and what the real estate sector believes is possible. Properties cannot be reimagined overnight but, as results suggest, both consumers and the real estate industry know reimagination must happen.

The greatest challenge facing the real estate sector will be getting the balance right between what consumers desire, how the industry can generate appropriate returns and how the industry can tackle climate change.

Just as some real estate investors are beginning to accept the case for lower returns in favour of pursuing the ESG agenda, there is also a growing backlash among US politicians in particular over this sacrifice being made. It remains to be seen if this is a turning point for the ESG movement, or will lead to just a temporary change in sentiment.

Reinvention begins

Many property owners and investors have already begun to act. Strikingly, according to our survey an average of 28% of real estate assets are currently being repurposed.

An even greater percentage is set to be repurposed in the next five years – 31% of assets.

The most popular change of use planned is to create more residential properties. Almost a third (32%) of industry respondents said they were planning to repurpose, or are repurposing, retail to housing, while 24% are intending to convert offices to housing.

In the UK this tallies with the change to permitted development rights in 2021 that made it easier to convert retail into residential. It also tallies with investors’ belief that this is where greatest returns lie.

Many build-to-rent operators are looking to expand their portfolios, encouraged by the sharp growth of this market. Where new build properties aren’t an option, conversion of a shopping centre, for example, could be viable.

Noticeably, the conversion from retail to office is fourth most popular. For years, use of flexible offices has been increasing and the pandemic has shone a light on how it could fit with “hybrid working”.

Well-placed workspaces on a high street could provide the facilities that businesses need for their teams. Small satellite offices could provide local hubs for workers who live nearby.

Repurposing versus building new properties is a subject that has come up for debate in the conversation surrounding net zero. While new buildings can use far less energy, the embodied carbon generated during construction is significant.

A recent article in The Guardian, titled ‘Drive for net zero fuels UK boom in retrofitting buildings for new use’, cited Grosvenor’s UK arm, which has pledged to invest GBP 90m by 2030 in retrofitting and reducing the operational emissions of its buildings.

The survey results indicate that in five years’ time, the mix of properties in a large proportion of town and city centre real estate could be very different. Centres might be more akin to what can be found in continental Europe, where more residential is integrated with retail and offices.

We could be closer to living in the ’15-minute city’, where people live, work and spend leisure time in a focused area, a concept explored in our 2019 report Urban Being: The Future of City Living.

The fact that the real estate industry is poised to act, or has already taken up the shovel, highlights the general recognition that, post-pandemic, many town and city centres are not fit for purpose. However, this action needs to be matched with an understanding of what consumers want, which our survey set out to uncover. The overall message from consumers in the UK and across the world is that retail is not dead, but people want it to be accompanied by a better quality of space. Though people may be visiting offices less often, when they do visit an office in a town or city centre they want to be surrounded by a built environment that better reflects their priorities post-pandemic.

Post-pandemic, fewer consumers are visiting town and city centres at least weekly – 44% down from 52% before the pandemic. Given the sharp increase in online retail, however, this is not as steep a dip as expected. In the UK, parcel deliveries increased by almost 50% in 1 April 2020 to 31 March 2021 compared to the previous year, to reach GBP 4.2bn, according to figures from Ofcom published in December 2021.

A key takeaway for the real estate sector here is that survey respondents said the pandemic has not taken away their desire to shop and spend leisure time in town and city centres, which many feared would happen.

When asked why they might visit a town or city centre post-pandemic, 60% of consumers across the world selected shopping for groceries and 57% shopping for fashion. Leisure facilities, nightlife and restaurants were the next most selected, suggesting a strong desire among consumers to socialise.

A Financial Times editorial in May 2022 compared the growth of the factory in the Industrial Revolution – changing where and how people live – to the potential of the post-COVID home working revolution to empty out cities, meaning they need to be made better places to live in and visit.

The jury is still out on this concept, however, with tube and bus travel in London continuing to grow and some experts believing that a global recession and a rise in unemployment would lead to employers demanding more efficiency and persuading employees to return to the workplace.

The pressure on health professionals and the impact of the pandemic are likely to explain why 83% of consumers would like to see an increase in the amount of healthcare in town and city centres. And given the popularity of visiting a town or city centre for leisure, it is unsurprising that 90% of respondents said that increased leisure facilities would make an area more appealing.

Those replanning town and city centres should note that the feature most likely to encourage people to visit a town or city centre is an increase in open spaces and places to sit. 92% of respondents said this would make visiting a town or city centre in a non-work capacity more appealing. This is perhaps predictable, following two years punctuated by prolonged national lockdowns.

Almost as popular among consumers were pedestrianised areas (91%), improved accessibility for people with disabilities (89%) and more public transport links (88%). Consumers are highly concerned about the quality of space and accessibility for everyone.

It is striking that the second most selected concern with regards to town and city centres was the number of empty shops – 88% of respondents were concerned by this, trumped only by pollution. Not far behind was the percentage of respondents who indicated concern about the decrease of independent stores (87%), suggesting that a consumer who chooses to visit a high street is seeking an experience that is not as easily replicated online.

In the UK, the Government has picked up on this. While the industry criticised how the Levelling Up & Regeneration Bill will give councils the power to let retail units forcibly, it is evidence that the situation needs to be addressed.

The industry’s view on the most appealing asset classes for investment in UK town and city centres has a different focus to consumers. Residential is by far the most rated asset class (87%), followed by urban logistics centres (79%) and health centres (73%) – the last of which was also highlighted by consumers as a desirable asset class.

These responses highlight the challenges facing society – the UK’s continuing housing shortage in many areas and the sharp rise in online retail. Centre for Cities reported that the UK doesn’t face a country-wide shortage of housing, but a housing crisis in its most unaffordable cities. Investors are clear in their belief that residential offers the greatest return compared to other asset classes.

Although retail appears here as a less appealing asset to the industry, results detailed in our previous section, ‘the market signals action is ahead’, show that retail has grown in its appeal to investors significantly since the pandemic. There is recognition that consumers still have a desire for a vibrant high street and places to go shopping.

While property owners and investors create strategies to align with the new world that has emerged post-pandemic, the most forward-thinking will have also noted consumers’ increased focus not only on healthcare, but wellbeing derived from healthy spaces. Our survey results highlight how much people are prioritising access to open spaces. They are also concerned about pollution, crime and safety and the amount of traffic.

A property investor, developer or owner who can create places that address these concerns will be the closest to creating the built environment that sits in people’s imaginations. Providing more homes will address a real need that is apparent across the UK, but consumers are more likely to make use of a town or city centre that provides space for leisure facilities and access for all.

Along with consumers’ desire for better quality of space comes concerns for the environment. The sustainability of town and city centres is a priority for 59% of consumers and a further 37% said it was important.

When it comes to how to improve sustainability, ‘better waste management’ was the most selected method.

The next two most popular responses directly relate to reducing properties’ carbon emissions: increased use of renewables and technology to reduce energy consumption. Respondents also paid attention to the impact of vehicles on the environment. 53% believe increased public transport would improve sustainability in towns and cities, while 46% wanted reduced traffic access.

63% of respondents want to have more restricted access for cars in the future. However, 57% of consumers currently mainly travel to a town or city centre in their own car, and the next two most used methods – bus or walk/run – are significantly behind at 37%.

The suggestion here is that what consumers would like to see can be counter to how they currently behave. Improving sustainability in town and city centres undoubtedly requires changes to everyone’s behaviours, including modes of travel.

To achieve any level of car reduction is likely to require investment in public transport, which is one of the goals of the UK Government’s Levelling Up agenda. Leaders of northern cities have criticised the government’s approach to improving the rail infrastructure in their areas for many years, highlighting a lack of investment and, for example, the decision to cancel the HS2 extension between the Midlands and Leeds. The measure in the Bill to devolve powers in England to areas that want them includes giving control over local transport systems, which could go some way to addressing this criticism.

In February 2022, a BBC article entitled ‘Levelling up: Northern mayors call on Government to reassess rail plans’ highlighted how the Government has admitted that its Integrated Rail Plan, published in November 2021, is not able to fully assess different options, including levelling up impact.

The increase in electric vehicles on the road may well influence the direction of funding, as well as the opinions of consumers on pedestrianisation. Pollution was one of the highest concerns among consumers, which increased electric vehicle use would go some way to address.

Overall, both consumers and the industry indicate that real estate investors, owners and developers are right to repurpose real estate. The evolution of how people interact with the built environment, coupled withenvironmental pressures, means that there is a huge amount of work to be done to reinvent town and city centres – but most agree that it needs to be done. This can be said not just for the UK, but for town and city centres across the world.