When we embarked on our first publication in 2019, our aim was to raise awareness of the issues in the retail sector that showed the need to repurpose a considerable proportion of shops across the UK and Europe. Retail then, as it does now, needs to be reimagined. Sustained challenges in occupation have left many of our towns and city centres with redundant spaces, while other areas have thrived or adapted. We wanted to see if we could bottle the magic ingredient and apply it elsewhere.
2023 will be the year that major repurposing projects really start to come out of the ground, given the time it takes for development to navigate the planning process and the disruption from Covid. However, before repurposing of retail had even begun in earnest, the story quickly evolved to thinking more broadly about how we can solve the wider economic challenges within town and city centres, for which retail has been core use for the last 50 years. As such, this has been the theme of Reimagining Retail #2, published in 2021– a deep dive into the future of economic sustainability of retail places. The same solutions are not applicable in all places, but thinking about a broader church of mixed property uses that meet the needs of communities and stakeholders would build resilience and support recovery.
Now, with our third publication in the series, we tackle the many facets and challenges related to environmental sustainability. What will retail real estate have to do to be truly green, reach net zero, be socially conscious and to thrive once more? Many parties – whether investors, developers, landlords or retailers – have been devoting increasing time to the environment, social and governance (ESG) agenda, and particularly that of decarbonisation, but these discussions are often fragmented. We wanted to bring them together.
In doing so we have discovered that economic and environmental sustainability are not two different challenges, but two sides of the same coin. In the fight to reduce our impact on the planet, it will be impossible to untangle the two. In fact, there is good reason to believe that leading real estate through a green lens will in turn lead to greater economic prosperity and better financial returns. This may come at a cost now, but inaction now will give rise to a greater financial and environmental burden in the future.
The Reimagining Retail project is a call for action. It’s a meeting of minds, both within our organisation as well as outside, to address some of the toughest topics facing our industry. These issues touch all of us and is a truly cross-sector property industry conundrum, whether or not you work directly with retail or
town centres. We’re all on a journey, with ESG and decarbonisation the hot topics of every conversation and for which no one can claim to hold all the answers. Sharing experiences and learnings from across the property spectrum therefore has the best chance to produce innovative solutions and steer us toward a net-zero and financially secure future. We hope you find the content in these pages both inspiring and engaging and please get in touch if you would like to get involved.
KEY EMERGING THEMES:
ESG, consumers and policy are all fundamental drivers of the retail property industry’s future direction towards net-zero. Arguably, policy doesn’t go far enough, and consumers may not follow up their stated opinions with their purchase behaviour. This leaves the private sector leading the way where ESG objectives are embedded in the organisation.
Where policy is driving change is with regards to the energy performance certificates (EPC) regulations that
are urgently bringing into focus the need to improve the energy efficiency of all commercial buildings. A staggering 83% of retail stock nationally will need to be improved by 2030, or we lose a considerable proportion of our shops.
Realistically it won’t be able to play out like this, not least because viability is a major sticking point and the consequence of forcing all of our shops to close would be a political disaster. Yet it does put into focus one aspect that is going to rapidly impact the property sector in the next few years. There is a key question as to whether the focus on EPCs is diverting attention away from other existing forms of ESG certification that could provide more effective solutions and benefits in the short term.
Reducing the energy we use has to be the number one goal. A 20% reduction in energy is equivalent to a 5% increase in revenue, so there is a clear financial incentive as well as an environmental one. Cleaner energy sourcing or production can make a significant difference, with many retail buildings being well suited to solar generation. Nationally, the retail property sector has the potential to farm energy equivalent to two Hinkley-C nuclear power stations each year.
The debate on the financial versus environmental case for rebuilding or retrofitting is complex, with good cases for and against both considerations. Rebuilding has proven increasingly controversial in some locations and increases to construction costs have certainly pulled things in favour of reuse, which reduces the embodied carbon. However, refits are not without their own impact, particularly around waste, while repurposing assets can provide an ideal opportunity to make improvements that reduce impact, improve EPCs and make operational efficiencies.
Green leases are becoming standard in the largest retail destinations and are used by all major landlords where possible, but agreements outside of strong trading environments with
weaker tenant demand are much less prevalent. This isn’t tenant apathy – many retailers are going to great lengths to fix their own operational footprints.
Landlords and tenants may have the same commitments, but often different priorities. 80% of a landlord’s emissions are associated with tenant activity, but for many retailers their shops account for less than 3% of their emissions, with the rest being produced elsewhere within their supply chain. As a result, it’s not surprising if a retailer’s intention to clean up their own carbon footprint is not solely focused on making improvements to the shops they lease.
The circular economy is one of the most important emerging principals in how we design the built environment. Buildings need to be flexible and agile for reuse and alternative uses, as well as using construction methods that lower the embodied carbon and extend the building’s life. Repurposing retail space provides the ideal opportunity to make improvements to both.
Retail and town centre assets lend themselves particularly well to the benefits of enhancing social value, another fundamental aspect of ESG and one that has tangible positive impact in driving consumer loyalty. Social and environmental initiatives are not disparate functions and are most powerful when developed in alliance.
Furthermore, leading our assets and developments with an environmental lens has the best chance of driving these places forwards economically. There is a clear correlation between economically and environmentally challenged places when it comes to investment values, so while the jury is still out on whether there is a direct green premium for the most sustainably focused retail schemes, there remains a significant risk of devaluation from inaction.
The Reimagining Retail project is a call for action. It’s a meeting of minds, both within our organisation as well as outside, to address some of the toughest topics facing our industry
