Shopping centre developments: Building on firm foundations?
Deal volumes have long been on a downward trend. As national lockdown continues, we have seen some of the best known retailers disappear with further casualties expected. Some of the largest investors in the sector have seen their portfolio valuations fall materially due to loss of revenue. If we look to hedge funds for a lead, it’s less than encouraging to see them taking positions against the recovery of retail and leisure, however, there still remains some interest in the sector. Experienced real estate investors acquiring shopping centres for their development, regeneration, and mixed-use potential as well as property owners who hold shopping centres as part of their portfolio seeking to re-purpose their assets.
The owners of Highcross Shopping Centre in Leicester announced plans at the end of 2020 to transform part of the Debenhams department store into over 300 new homes while retaining the retail frontage onto the mall.
Then, there is Nicholson’s Shopping Centre in Maidenhead, acquired in 2019, which has plans for a £500m major mixed-use scheme and The Galleries Shopping Centre in Bristol which is also earmarked for substantial transformation.
Some of the less conventional planning applications now being put forward for shopping centres could potentially present less familiar risk factors which developers will need to consider carefully as part of their due diligence and risk analysis process. Issues such as title, restrictive covenants, right to light, and judicial review could all come into play.
When lockdown eases and retail destinations re-open, many sites will involve an element of vacancy and developers need to ensure their planning strategies include adequate risk management procedures. It’s also important appropriate insurance arrangements are in place around proposed development works. Contractual arrangements for insuring any existing structures require careful consideration, whilst there is also an increased drive for Latent Defects insurance from prospective lenders. Engaging with your broker early on can help you avoid or mitigate potential risks. With extensive experience in this sector, Lockton’s specialist team is ideally placed to help you manage these and other risks.
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