Why residential and retail are getting closer than ever

Mall owners want people shopping in their stores and locals want amenities on their doorsteps

April 26, 2019

With today’s consumers looking to have a range of amenities on their doorstep, retail and residential developments are being built in ever closer proximity.

In the UK, some apartment schemes are now following in the footsteps of US developments and rising up alongside large-scale urban shopping centres.

European malls owner, Unibail-Rodamco-Westfield is venturing into rental living, backing a £670 million residential scheme next to its shopping centre in east London. Retail property group Intu — which owns the likes of Manchester’s Trafford Centre as well as malls in Bristol, Nottingham and Glasgow — last year said it had identified enough land at its six UK centres for 5,000 homes and 600 hotel rooms.

“Boosting the population of the immediate vicinity is certainly a clever footfall driver,” says Skomer Bennett-Clemmow, UK retail research analyst at JLL. “We are seeing more retail investors explore this but for now, it’s being led by established mall operators in top locations.”

In the case of Westfield, around 1200 rental homes are expected to be built next door to the firm’s mall just over a decade after it opened to the public. The firm first began entertaining the idea of a move into residential development in 2016.

“Logically, people will rely on the centre next door, so footfall can naturally be boosted and sustained,” Bennett-Clemmow says.

Adapting to a new retail world

The retail environment within shopping centres is evolving as the rise of online shopping and a tough trading environment impacts the traditional mix of retailers taking space in malls.

Now, more food and beverage brands and new leisure concepts, from boutique gyms to so-called competitive socialising concepts like ping pong or crazy golf, are moving in. And these provide an attractive array of entertainment options for people living nearby.

For tenants, the appeal of living close to a mall lies in convenience, says Nick Whitten, residential research director at JLL. “They’re living next to a major, community asset offering near round-the-clock entertainment.”

Whitten says homes are most likely to appeal to professionals in the 18-35 age range, with the time and expendable income to take advantage not only of weekend shopping, but also weeknight socialising.

“However, there’s an inevitable tipping point where if rent levels are set too high, then residents’ expendable income takes a hit — defeating the objective,” he says. “Developers entering this space will need to keep that in mind.”

Location, location, location

The position of existing large shopping centres means they are well-placed to take advantage of the growing trend towards urban living, says Whitten.

“While the UK has a shortage of housing, the shortfall is most prevalent in major towns and cities,” he explains, pointing the estimated 1.2 million homes needed in England alone.

“And if this is the start of a drive towards providing more places for people to live and play, then drive-in retail parks are, at a time of decreased car usage, unlikely to become standalone destinations.”

Indeed, good public transport connection are key to a scheme’s triumph.

“While shopping centres are large employers, it’s likely that people living in homes built next door to a mall will actually work further away,” says Bennett-Clemmow. “So the need for good infrastructure is just as strong.”

Half way there

While Bennett-Clemmow envisions more shopping centre specialists heading into the residential sector in the next five years, their moves will require greater flexibility and a less “siloed approach” to real estate sectors.

“It’s quite a significant commitment but broadly-speaking, they’re still unsure about how to apply this to their existing business models,” he says. “Residential is a different asset class and that means different parameters to measure success.”

However, a potential change to England’s planning system, which could allow empty shops to be converted into homes more quickly, could encourage more retail developers to explore the residential sector.

The Westfield move may be a sign of more long-term thinking by retail specialists, Bennett-Clemmow says, and the development of malls with offices, hotels and residential elements is a possibility, with more onus on community, placemaking and a mix of uses.

“For now, it’s still early days but it’s a big step towards the creation of multi-use ecosystems,” he concludes. “The real challenge will be how to keep the scheme fresh and interesting for consumers and investors alike.”

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