Making community influence on the high street a reality will involve a number of challenges beyond designing the appropriate arrangements for partnership working. This report does not present solutions for all of these issues, but rather notes where policy changes will be required and makes suggestions for advance consideration.
The questions of who owns the high street and how they run it are central. The ability to take a “whole place” view of a town centre or high street and retain a critical mass of affordable units is highly dependent on the nature of ownership in a place.
Where there is consolidated ownership, landlords can afford to take a lower yield on particular activities in some premises, as these activities will keep people coming to the high street and therefore sustain the value of other more lucrative uses. This could result in a slightly counter-intuitive situation where single ownership allows for a greater diversity of community uses within a town centre. However, fragmented ownership in our high streets is more typical. A focus by individual owners on individual units as selfcontained sources of income can be a barrier to seeing how value across the whole place works.
Without taking a broader view of local vitality, the risk is that landlords are less concerned with being responsible stewards and more concerned with avoiding vacancies. Table 4 shows the correlation between different patterns of ownership and vacancy rates.
Source: Estates Gazette research carried out for Centre for London, based on an aggregated analysis of vacancy rates and ownership across 15 high streets and town centres in London.
Case study: Public intervention in town centre property for community benefit: Islington Council
Responding to the inequalities in the local economy has been a priority for Islington. Islington has one of the highest pay inequalities in London, and almost double the average child poverty rate in the city. Adopting a “community wealth building” approach has meant a focus on local wealth retention as well as the provision of good jobs and working conditions for local people. The approach involves targeted intervention in the local economy to achieve these goals.
Fonthill Road in Finsbury Park is a high street with a long-established specialism in fashion, garment production and accessories, historically attracting shoppers from across London. Islington Council had identified that there were a significant number of residents in the area running small and micro-enterprises in sectors such as fashion. However, in discussions with the local traders’ association, traders had raised concerns about their long-term viability. Even prior to the pandemic, the council had recognised that providing affordable workspace and retail units would be key in sustaining this unique small business cluster.
With support from the GLA, the council purchased long leases on a number of units on Fonthill Road. One of the units has become a retail space operated by fashion enterprise Fashion Enter: it provides a space for local people to sell their work and get established in the garment industry, tapping into an established local cluster. In lieu of rent, Fashion Enter provides business mentoring and training for local people, according to social value criteria agreed with the council. 15 female designer-maker entrepreneurs have taken space in the shop, and a group of local women have completed accredited training with the local college. They put their new skills to good use during the pandemic by making face coverings for vulnerable members of the community.
Islington Council is also developing further affordable workspace nearby with the aim of developing a sustainable business ecosystem that has social value at its heart. Garages on an estate a few streets away are being converted into workspaces to train under-represented groups in the skills and trades needed in the fashion industry.
The council hopes to use its intervention in property not only to provide direct employment and skills benefits to local people, but also to provide a benchmark of best practice for other local businesses in the town centre – raising standards in terms of sustainability, pay and ethics.
The data shows how, across a sample of London high streets and town centres outside the Central Activities Zone, different types of ownership give rise to quite different vacancy rates. Real Estate Investment Trusts and property companies have a significantly higher vacancy rate as a proportion of their portfolios compared to other types of owners. Institutional landlords such as pension funds have a lower vacancy rate, perhaps related to their desire for long-term, consistent returns. Public sector landlords have one of the lowest vacancy rates proportionally.
Some public interventions on land acquisition have gone beyond smaller units and instead seek to change a whole place. In recent years, the topic of commercial property acquisitions by local authorities has been contentious. Here it is important to draw a distinction between property acquired in order to plug revenue gaps, and land acquired for strategic placemaking purposes. Recent data show that almost 20 per cent of shopping centre space bought by local authorities in the last three years will be turned over to community use or demolished for alternative uses. 50
In Stockton-on-Tees, the borough council purchased two shopping centres in the heart of the town that suffered from vacancy rates of close to 30 per cent. Recognising a structural oversupply of retail space, the council plans to relocate the remaining businesses and demolish both shopping centres. This will fundamentally change the footprint of retail in the town. The shopping centres will be replaced with a new park that will provide direct access to the river, currently blocked off by the existing shopping centre. This is a significant intervention that demonstrates the importance of local authorities acting as an enabling partner for community use. The role of councils as responsible stewards of place over the long term, allied to their ability to raise finance, will be crucial.
On occasion, councils have explored some of their other unique levers around land ownership and spatial change. Councils have the ability to use Compulsory Purchase Orders (CPOs) on regeneration grounds, but in practice they have been reticent to use it as it is a lengthy, complicated, and resource-intensive process. There are some instances of councils committing to use CPOs to reshape their high streets, representing a significant intervention in local property markets. In Barnet, the local authority is carrying out a strategic renewal of North Finchley High Road, with the mix of uses being diversified alongside a programme of development intensification. This large-scale redevelopment will involve reducing the retail footprint in the town centre: the council has committed to use Compulsory Purchase powers to do this if it can’t be achieved by other means.
Some approaches to ownership can be more problematic than others. A particular challenge is engaging landlords who are distant and uninterested in the places which their assets serve. Where place partnerships want to engage “delinquent” owners, it can be difficult to even find out who they are. Land Registry records show who the legal owner of the property is, but this isn’t necessarily the same as the ultimate “beneficial” owner. 51There have been welcome steps toward greater land ownership transparency in recent years, for instance by making previously paid-for Land Registry data available for free. Going beyond this and making beneficial ownership data available too was cited by several of our research participants as a requirement for better engagement across all stakeholders in town centres. The UK government has committed in principle to creating a register of beneficial owners, but is yet to confirm a timetable. 52
Local property taxation and powers
Policymakers, politicians and high street operators have long been unhappy with the operation of local property taxation. In addition to the issues with council tax described above, business rates are a regular source of complaint. Despite the temporary reliefs on business rates over the course of the pandemic, there is a long-standing sense of unfairness around the taxes levied on occupiers of non-domestic property. During the course of our research, it was a concern raised regularly by those involved in place management as well as operators on the high street. The mismatch between the rates levied on businesses that rely on physical property to operate and those that can be run online is stark. 53 It is an indicator that the business rates regime was designed for a previous age. Revaluations in recent years have seen significant increases in “rateable value” (which determines the level of business rates) within London, where other regions have seen falls. 54 Despite small businesses qualifying for rates relief in principle, the higher rateable values in London means that over 70 per cent of Federation of Small Business members in the capital do not qualify. 54
Reforms aimed at making business rates a proportionally larger source of local government financing have complicated matters further. A complex system of grants, top-ups and tariffs aims to balance an inherent trade-off between incentivising growth and increasing the local tax take of each local authority, while still ensuring an equitable distribution of funding between areas. 56 Further major reforms announced – aimed at increasing the share of business rates kept by local government and making broader changes to the allocation of funding – have not materialised. 57 Heavy criticisms of the system have led to calls for it to be abolished entirely and replaced with a land value tax on business land. 58 The Treasury has committed to publishing a full review of the business rates regime in the autumn of 2021. 59
Changes to the local fiscal regime in recent years have been accompanied by a significant withdrawal of national government grant funding to local authorities. The current system is confusing and unfair, while at the same time not providing sufficient resources for local government to operate sustainably. A series of short-term deals limits the ability of councils to plan over the long term and shape their areas. An already precarious situation for local government has been made worse by the loss of income and additional spending pressures caused by the pandemic. 60
A full discussion of local taxation is outside of the scope of this report, but achieving an equitable fiscal settlement which allows for provision of good local services and is subject to local control should be a priority for reforms. 61
Rents and valuation
In addition to business rates, common practices in commercial landlord-tenant relationships were cited by interviewees as a challenge for the viability of operators across all sectors on the high street. “Upwardsonly” rent reviews, in which rents can only be increased upwards, clearly represent a challenge for small operators and those with a more community-oriented focus.
Similarly, for community businesses, social enterprises and other SMEs, long-term leases can represent a significant fixed cost and a barrier to entry where they might prefer slower, incremental growth. Conversations with a large landlord holding assets across the country revealed how commercial property owners traditionally prefer long-term leases, with the aim of attracting large multiple retailers who can guarantee payment over a long period.
There are signs that rent models are changing as landlords accept the new realities of high streets and respond to the oversupply of retail space. Turnover leases – where rents are defined with reference to the turnover of a business – are not new but have become increasingly common over the course of the pandemic. Some landlords are now operating more flexible lease arrangements, offering shorter terms down to a few months in order to allow smaller businesses to start trading.
However, an interview with a commercial surveyor observed that this approach should be treated with caution:
“Sometimes community businesses can be treated as a business rates mitigation exercise. Some of them need longer terms, and you need to mindful of ‘community-washing’.”
Barriers still remain, however, and the valuation process itself can also cause issues for affordability.
“Even where properties are vacant there can be an incentive to keep rents high rather than let the property. Investors looking for capital growth won’t lower their rent as it will reduce the capital value ultimately.”
Real estate analyst interviewee
Planning powers and reforms
Alongside significant changes to grant funding, national government has also made changes to local government’s spatial planning powers in recent years. The reform in 2020 of commercial use classes – by merging multiple uses into a single “Class E” – allows changes between a wide variety of previously distinct commercial uses. This is known as “permitted development rights”. Given the need for adaptability on the high street, this could be a welcome development. Having a more flexible commercial use class system could allow places to respond to changes on the ground more dynamically than in the past.
In London, town centres are organised into a hierarchy of size and importance across a “network” – from small “Neighbourhood” parades through to “District”, “Major”, “Metropolitan” and a few “International”. The hierarchy is based on the potential floorspace for a number of town centre uses, as well as public transport accessibility. While it is right that planning policy should accommodate growth in town centres that can sustainably support it, policy should be mindful of giving too much weight to retail floorspace as a projection of needs. The London Plan has suggested “typical” uses across this network, with bigger town centres having a suggested wider diversity of uses. It is important that policy does not become a self-fulfilling prophecy, steering diversity of uses towards larger centres only.
Nonetheless, there exist more substantial and immediate threats. In December 2020, the UK government launched a consultation on extending permitted development rights. 62 The suggested changes would allow buildings with the new commercial use Class “E” to convert to residential use without needing planning permission. We accept that in principle, town centres are an important location of development land, and could accommodate more residential development. But the precise details, designs and location are all important, and such shifts need careful treatment.
Previously, we have seen that a successful high street relies heavily on a variety of uses being concentrated in one place. This requires a core of non-residential activities to sustain footfall and viability of different uses. It is particularly important to have “active frontages”, where there is interaction between the activity inside a building and in the street.
Breaking up this core with inappropriate residential development could hasten the decline of the high street even further, affecting the viability of other commercial uses beyond retail. Higher development values are a significant incentive to convert non-residential space to residential use, and represent a serious threat to efforts at high street renewal. Retaining the powers of public bodies to prevent excessive commercial-to-residential conversion in high streets and town centres is essential.