As Workman approaches its 40th anniversary, leaders of the firm share their plans and vision for the future, within the UK’s rapidly evolving property industry.
While the firm gets underway with the management of several prestigious London assets including The Royal Exchange and St Christopher’s Place, Gareth Soar, Partner at Workman, shares his outlook in his newly expanded role as the firm’s Head of Retail and Leisure.
Here, Gareth outlines the property management challenges and opportunities presented by today’s retail property market.
What are your plans in your new role as Head of Retail and Leisure?
My vision is to continue to build on the success we’ve had in recent years, with some excellent instructions from new and existing clients, including Glasgow’s premier shopping and leisure destination Silverburn, and London landmarks The Royal Exchange and St Christopher’s Place.
Retail & Leisure is a specialist field, which is why we have a team of more than 100 retail surveyors and support staff in the firm.
I am also keen that we continue to support the development of our onsite teams who play a vital role in the management of retail schemes. Our highly skilled and dedicated centre management and site teams live and breathe the assets in which they work. And because they are on the ground at each property, these teams are constantly engaging with occupiers, understanding their businesses, and supporting their trading performance.
This engagement was never more important and evident than during the pandemic, when Workman engaged with occupiers more than ever before. As a result of our close relationship with retailers, we were able to continue to ensure reliable rent collection from many businesses, some of which were struggling and found our support invaluable.
Finally, as property managers we have an important role to facilitate the changing nature of the relationship between investors and retailers. The difficulties of recent years have been catalytic for attitudinal shifts that are heralding new, more collaborative ways of working, with a rebalancing of the relationship between landlords and occupiers. This manifests in a range of areas – more flexible lease terms, turnover rents, joint marketing for example – and we’re focused on making this collaboration work for all stakeholders.
What are current retail trends, and how they are affecting Workman?
As we entered 2023, the UK was in the grip of the cost-of-living crisis and a recession was looming. The retail sector was very much in the spotlight because of reduced consumer spend and spiralling operating costs, and the impact on occupational costs. However, the sector has remained resilient, with rent and service charge collection rates back at pre-pandemic levels.
Retail parks continue to perform very strongly and were the standout success of the sector coming out of Covid. Although value in shopping centres took a hit, vacancy rates are dropping and footfall is returning to pre-pandemic levels, using 2019 as a meaningful benchmark.
Investors have purchased at what they perceive to be the bottom of the market and feel like they can revive schemes through asset management expertise. Business rates revaluation, which came into effect in April, is partly driving this – and is slashing occupational costs in some retail locations, making them more attractive. There have been significant reductions in rateable values. While there are some exceptions, this reduction in occupational costs will enable retailers to trade more cost effectively, and our clients to attract new tenants to their schemes.
There is clearly still demand for physical retail, but it is evolving. Research by CACI shows around 52% of UK towns and cities remain over-spaced for retail. We can help landlords and tenants right-size and look at giving back space, which can be turned into alternative uses such as residential by our clients. The market direction is that retailers want fewer but better stores that represent their brand.
What are the specific challenges and opportunities at The Royal Exchange?
The Royal Exchange is the City of London’s luxury retail destination, and a grade one listed building. A unique arcade, it was originally built in the 1500s and we have a huge responsibility in looking after this iconic building, not only upkeep and maintenance, but also protection of its heritage and status as a beloved high-profile landmark in the City.
In terms of challenges, today we have to account for hybrid working and look at ways we can support our occupiers by attracting city workers and tourists to visit the Royal Exchange. We are recording positive footfall and tenant sales data, particularly for the food and beverage operators such as Fortnum & Mason.
We are also seeing take-up of the venue as a stunning location for weddings and high-profile events, such as the recent Fortnum & Mason Food & Drink Awards, so we are supporting that usage, which extends the life of the building outside the City’s usual Monday to Friday.
Given its location, an added dimension is security, so we work in conjunction with the City of London Corporation and police to set the strategy, while still maintaining a premium luxe shopping experience for customers.
Finally, the Bank area is undergoing significant improvements through large-scale investment in public realm, directly in front of the Royal Exchange, as part of a huge project being undertaken by the City of London Corporation to update and pedestrianise the Bank crossroads and walkways, so there is the challenge of ensuring our client’s and occupiers’ best interests are represented, and that we try to minimise disruption to trading.
And what are the specific challenges and opportunities for St Christopher’s Place?
At St Christopher’s Place, which is located off Oxford Street, the footfall is more likely to be made up of tourists, it’s a profile of retailer and shopper that’s very similar to Covent Garden and Carnaby Street.
The scheme is made up of a number of buildings and 30+ service charges, which creates specific challenges for a property manager, but it’s renowned as a chic corner of London, which has seen positive performance so far this year and is well let.
In the West End, tourists – both domestic and international – rather than workers, remain the single most important driver of trade. Recent data (from CACI and the New West End Company) show international visits have recovered much quicker than anticipated.
While marketing of the scheme is aimed at this target audience, we need to ensure this represents value for money for both our client and occupiers. It’s about understanding our occupiers and making sure that marketing spend is targeting the right areas. We’re committed to taking on board their strategic ideas, because ultimately the spend functions to help their businesses.
The challenges of managing a scheme in central London also include non-stop redevelopment and construction works. We take care to liaise closely with local owners and Westminster Council, ensuring sight lines and service routes are protected and maintained. In turn, we pay close attention to our relationships with occupiers and local stakeholders, communicating frequently.
What technology solutions are you currently seeing making a real difference in retail property?”
During Covid, our Property Management teams worked hard to review service charge budgets with the aim of reducing expenditure to assist our occupiers. However, as a result of spiralling energy costs, utilities expenditure now forms a significant part of the service charge, which can quickly undo a lot of the savings achieved.
This means it’s more important than ever to ensure we are running all of our schemes as efficiently as possible, especially from an energy consumption point of view. Our IBOS tech is proven to reduce energy consumption by cutting out-of-hours spikes, for example. It is increasingly being installed in retail and leisure spaces as asset managers see the achievements being made in office buildings. The recent increase in energy costs and the savings being delivered by IBOS quickly justify the initial expenditure on the technology.
There is a misperception that smart systems are expensive and therefore only viable for trophy assets. But we have shared data with clients on energy, cost and carbon from trials to prove that the IBOS system is affordable for whole portfolios – in buildings of different sizes, asset types and occupancy levels, including vacant and fully occupied buildings. As more buildings have come online, this data has become stronger, so it’s easier for clients and our occupiers to see the benefits.
How does all this feed into the bottom line, or Net Operating Income (NOI), for asset managers and investors?
Not only does cutting utility costs reduce occupational costs for occupiers, making the scheme more attractive, it also directly benefits our clients NOI by reducing void or non-recoverable costs that they have to bear. Not to mention the long-term sustainability benefits of reducing utility consumption.
This is just one example of where, by working closely with asset managers throughout the lifecycle of the ownership, our management teams can strategically reduce expenditure in areas without affecting service delivery, maximise rental income streams, and identify and reduce potential risks and liabilities for the investor.
What role does social value play within retail property management?
Building social value at the properties we manage, and becoming more intentional about the way we manage them, offers invaluable opportunities for a positive social impact on their local communities.
Increasingly, commercial real estate investors want to create broader social value from their investments than pure financial return. Our extensive placemaking programmes, often delivered through Activate, Workman’s placemaking team include seasonal and charitable events for local communities, as well as opportunities for local independent traders. Our onsite teams host business, training and development seminars and events to support local businesses and those seeking employment, while also providing outdoor space and venues for the use of local community groups.
Our teams implement procurement policies and actively manage supply chains to enable and encourage the use of local suppliers, contributing to local employment.
We adopt wide-ranging inclusivity policies and ensure that events and approaches adopted go well beyond one-off annual events such as Purple Tuesday or Autism Hour.
We have an important role to play in contributing to local communities through our property management and onsite teams, and we recognise that the positive impact social value in property can achieve is increasingly recognised by some of the leading ESG benchmarks such as GRESB, and formal measurement tools are now emerging.