A high-quality retail or leisure unit can act as a ‘shop window’ for the residential homes surrounding it. We have already established the relationship between these uses and residential value. One way to unlock this value is through carefully curated retail and leisure as part of a residential scheme that will appeal to the target market.

There are many benefits to this curation. It helps with the establishment of the development as a destination, and can provide improved financial returns; not necessarily through the retail itself, but by increasing the demand for and the value of the residential part of the development.

But there is not a ‘one size fits all’ solution to making this relationship work. Much depends on the demographics the development is aimed at, the type of residential tenure to be delivered, existing retail supply and demand fundamentals in the surrounding area and the management structure of the whole site.

Targeted provision

Consideration needs to be made about who will be living in the area and the type of offering that would appeal to them, as well as what is viable and can add value to the wider scheme.

For example, according to the ONS Family Spending Survey, spending on housing by the under 30s increased by 6.7% between 2015 and 2018. With less disposable income, this age group has become more discerning in its use of money. Spending habits have become more experiential than material, so a scheme aiming to attract young professionals or first-time buyers could consider ground floor uses beyond traditional retail. This might mean more space dedicated to leisure, such as gyms, or community uses.

By contrast, those aged 50 to 64 are the biggest spenders in terms of recreation, culture and eating out, so a scheme aiming to attract downsizers could prioritise food and beverage occupiers.

Making it work

Given the need for a ground floor retail offering to be flexible, and the uncertainty faced by occupiers at the early stages of a development, this high level of curation isn’t easy. The traditional model of retail space being sold off and managed separately may not be appropriate in some circumstances, as it doesn’t provide the developer with long-term control of the offering across the site.

So, how do you secure and retain the right occupiers? Flexible leasing terms, affordable or below market rent, turnover terms, contributions to fit out and rent-free periods are all tried and tested approaches. More innovative ideas take flexibility even further, by creating spaces that can accommodate a variety of uses and where the occupier can ‘lease’ the space on an hourly or daily basis.

Adopting a more flexible and sustainable rental approach to the ground floor/retail element will have valuation implications. But, with the bulk of the value in a residential-led scheme tied into the new homes, taking a more considered approach with the ground floor in order to enhance residential values may have greater and longer-term benefits.

This is particularly crucial for early phases of multi-phase projects, and for developers who are retaining a stake in a new area. However, it is also more easily achievable in these situations where the developer will retain longer-term ownership, such as in the growing build to rent sector, or in mixed-use schemes.

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