Savills : What role do department stores have in repositioning our high streets for the future?

In 2017, department stores in the UK turned over £10.6 billion. In 2019 this fell to £9 billion - a reduction of 15 per cent in just two years. In addition, 5 million sq ft of floorspace has been lost from this retail sub-sector in the last five years alone. With recent news that all Debenhams stores will close following the acquisition of the brand and website by Boohoo, this is only set to increase.

So what's going on? Covid-19 may have been the final nail in the coffin for a number of department stores, but it was by no means the sole cause. Ecommerce, tired branding and a lack of investment all play a role. While none of these factors spell the death of the concept as a whole, the sector is certainly at a crossroads.

In the UK, Savills is involved with 41 Debenhams and 10 House of Fraser repurposing projects as well as advising other large format retailers on their store strategies. For example, in Kingston upon Thames, Frasers Group has received planning permission to repurpose a high street unit into a 40,000 sq ft multiformat store with 33 residential apartments above. In Wandsworth, London, Savills has secured a new deal with active entertainment venue Gravity to acquire a former 80,000 sq ft Debenhams store, and in Leeds the city centre Debenhams will be converted into a range of alternative uses, with interest currently from the education, student accommodation and hotels sectors.

These examples provide a snapshot of the wider activity taking place across the whole of the UK, with appetite for store space also growing from the life sciences, co-working and medical industries.

The repurposing process can be slow, but the proposition is an exciting one. The viability of a redevelopment must be considered, particularly when it comes to retrofitting different space requirements into what are often historic buildings. Financially, repurposing empty department stores requires significant capital expenditure, although it can be worth it to a landlord whose asset values may be suffering from the uncertainty of future income.

However, it's not always clear who should actually pay for the redevelopment. If the retailer is wanting to downsize then arguably the onus is on them, but more likely the liability will fall to the landlord. Either way, there are often limited cash reserves available and so the majority of projects tend to be funded by landlords with deep pockets, or through a sale of the asset to a developer.

2020 was the perfect storm for some operators, but for others it was been an opportunity to press the reset button and to come out stronger. Part of this regeneration has meant the consolidation of store networks, downsizing and the subsequent repurposing opportunities. However, we believe that department stores still have a place on our high streets where the location and offer is right, assuming that these businesses evolve and adapt.

The future of department stores may look challenging but there is something of the phoenix about them and the buildings they occupy. We will see renewed offers with new formats, rationalised floorplates and reduced portfolios but we must also be open to new department store concepts as much as embracing the opportunity for change and contemplating alternative uses.

Further information

Contact Tom Whittington

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