Article by
Martin Courtney 
and Manon Sel, Legacy Portfolio
While housebuilders were among the biggest winners in the March Budget, the property industry saw little else to write home about. Following the Mary Portas review and a new Government task force to tackle the decline in the high street, we have seen piecemeal progress in addressing the 14% of unoccupied high street shops (source: the Local Data Company). The burden of surplus property on UK plc continues to be a thorn in the side of many a corporate, with an estimated £10bn worth of surplus leasehold liabilities in existence in the UK. Preliminary research suggests that even successful businesses in stable economic times find themselves with 5-10% of their property portfolio no longer meeting their needs.
Surplus property is difficult to shift and putting up a 'For sale' or 'To let' sign may not be enough to solve the problem. New and innovative ideas to re-use and re-cycle property are being called for – and not necessarily in the most conventional ways!
Creative short-term solutions are increasingly prevalent and include projects such as Boxpark in Shoreditch. The newest idea in the fight for the declining high street can be found in a small patch of what was previously unused and undesirable land. Boxpark is the world's first pop-up mall based in the heart of east London and is entirely constructed of stripped and refitted shipping containers. This creates a low cost, and low-risk pop-up store offering to high street retail brands. Not only does it offer a unique shopping and dining experience, its offering to occupiers is unique as well, with leases in Boxpark typically lasting anywhere from 3 to 24 months.
Another example of an inspired use of vacant high street space can be found in the work of Central Working. Central Working aims to provide the ideal environment for growing businesses through a members-only workspace and club. Situated in a number of locations across London, they inhabit non-prime retail spaces and turn them into beautiful oases of high speed internet, good-quality coffee and stylish interiors, fostering collaborative working for start-ups and new businesses.
While short-term ideas appear to be popping up all over the place, it seems the long-term situations have been given less attention. Our approach at Legacy Portfolio is to provide just that – a long term and finite solution for corporates who are tied-in to leases that are surplus to their needs. Now more than ever, we are experiencing a step-change in corporates' attitudes towards their surplus property. This is, in part, due the impending lease accounting changes. These changes will indirectly affect how corporates choose to deal with their surplus property, simply because they will have to refocus on their operational properties. In partnership with Smith & Williamson, we have worked with FTSE 100 and NASDAQ firms such as Wolseley UK and Virgin Media, to rid them of the risks associated with their surplus lease portfolios. These portfolios often cost our clients upwards of £40,000 each day and present both financial and reputational risks.
With all this in mind, it is clear that there is a real need for change in the landlord/tenant relationship, as tenants will demand more and more flexibility going forward. With mortgages on commercial property frequently relying on significant lease terms, this presents a challenge for not just landlords but their funders too. The question that must therefore be asked is, whether landlords and their funders are currently doing enough to ensure that progress is being made?
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