“At the end of the day, what we need to do as a retail real estate owner, is attract more customers, persuade them to spend more money in our assets because ultimately that will feed through to better sales performance for our tenants, they become more profitable and therefore they will want to remain in our assets and the prospects for us to be able to achieve higher rents in the future is more likely when you have your tenants trading well and profitably and that’s what we’re really super focussed on.”
Susan Freeman
Hi, I’m Susan Freeman. Welcome back to our PropertyShe podcast series brought to you by Mishcon de Reya in association with the London Real Estate Forum, where I get to interview some of the key influencers in the world of real estate and the built environment. Today, I am delighted to welcome Allan Lockhart, Chief Executive of NewRiver REIT. Allan has over 35 years’ experience in the UK retail real estate market. He started his career with Strutt & Parker in 1988, advising major property companies and institutions on retail leasing, investment and development. In 2002 Allan was appointed Retail Director of Halladale Plc, focussing on acquiring value add opportunities in UK retail real estate. Following the successful sale of Halladale in early 2007, Allan co-founded NewRiver and served as Property Director from its IPO until being appointed CEO in 2018. So now we’re going to hear from Allan Lockhart with his thoughts on the UK retail property sector, the challenges in opportunities for NewRiver REIT and his vision for the future.
Allan, welcome, it’s lovely to speak to you. We met at a Movers and Shakers breakfast at the end of last year when you were a superb panellist and I was so impressed by what you said about retail and in particular omnichannel retail that I just had to sign you up for the podcast, so I’m delighted to have you here.
Allan Lockhart
Well thank you and it’s great to be on your podcast. I, I have listened to quite a number of your podcasts so, it’s a real favourite of mine so, great to be here, thank you, Susan.
Susan Freeman
It’s very kind and I like your podcast as well.
Allan Lockhart
Well, I’m just a mere amateur compared to you.
Susan Freeman
So, you have had I think 37 years immersed in UK retail. Is it true to say that retail real estate is very much in your blood?
Allan Lockhart
Well, it really is because I’ve pretty much spent my entire career involved in retail real estate so I’ve been through quite a lot of cycles. I’ve worked in most aspects of retail real estate from leasing shops to providing investment advice, through to development so, over the years I suppose I’ve gained quite a bit of experience. I love the sector, it’s a fast-moving, very dynamic sector. It’s a sector also that has incredible media coverage because it’s a sector where a lot of the media’s readers and viewers, you know understand because they go shopping every day and so it’s a very high profile sector and one that I’ve really enjoyed, despite the highs and lows over the years.
Susan Freeman
Yes, it, it must be particularly challenging or has been challenging over the last few years and we’ll, we’ll have a talk about that. But just in terms of context, you co-founded NewRiver in 2008 as a specialist retail property company and it was listed on the London Stock Exchange in 2009, but it has been a particularly busy last year I think for NewRiver. Since we first met sort of fourth quarter of last year you finalised the acquisition of Capital and Regional and you acquired Ellandi last year as well so, it would be great if you can just tell our listeners the extent of the NewRiver portfolio now.
Allan Lockhart
Yeah sure, well today our business is really in two sorts of sections. We have our own balance sheet assets which totals about £900 million. That comprises of shopping centres and retail parks and we sort of own assets in pretty much most regions in the UK from Scotland, Northern Ireland and pretty much all the way through England and a few assets in Wales, so we have really good geographical representation and insights. The other part of our business is what we call our capital partnership business where we manage assets on behalf of investment partners that want to be invested in UK retail real estate but they can really benefit by leveraging off our platform where we have a lot of experience and expertise plus our data insights is to some extent unrivalled. And when we add that portfolio together with our own balance sheet portfolio, it totals around £2.5 billion. We’re collecting roughly £225 million worth of rent per annum from around 3500 tenants and of course we have even more data and insights through managing other people’s assets. Retail parks probably represent about 21% or so of our balance sheet assets. They’re preforming very well. We started investing in retail parks back in 2014 because our research at that time was telling us that Click and Collect was going to be a big growth driver of the market going forward and we believe that retail parks are in many ways highly compatible with online fulfilment. And then our shopping centres are really located in the hearts of communities where people live, we have very short travel times, well over 70% of our customers travel less than 5 miles to come to our shopping centres and our shopping centres are very much geared towards where customers are spending their weekly household budget. So, most of our shopping centres are anchored by food retailers but we provide health and beauty and services as well as you know other types of retail uses. And those are performing very well as well and we were actually out with a trading update and again you know our occupancy is very, very high, we’ve had another quarter of really good leasing performance and most importantly of all, our customers are spending you know their hard earned wages in our assets and for the twelve months through to the end of March, I think our customer spend was around about 4.9% year on year growth versus a UK average around 1.1% so, we’re very pleased with our portfolio positioning, we think we got the right assets in the right locations, let to the right tenants and that’s why we think we’re delivering very good performance.
Susan Freeman
And are you looking to do more acquisitions? Are you looking to increase the footprint?
Allan Lockhart
Well, for a couple of years up to the beginning of our last financial year which started on the 1 April 2024, we’ve been operating with a very high elevated cash position of around £130 million and we were really waiting for the right opportunities to deliver or to deploy our capital into opportunities that were going to deliver very good financial outcomes for our shareholders and we made our move last year, particularly with the acquisition of Capital & Regional which in many ways was quite transformational for us as a business. So our priority really right now is making sure that that Capital & Regional business is fully integrated into our platform and importantly, we deliver what we said we would deliver to our shareholders, which is about delivering earnings growth through the unlocking of the cost savings that we’re able to deliver through that acquisition. So that’s going to be our key priority but every year generally we would sell, over the last three years every year we probably sold about £40 to 50 million of our existing assets and that gives us the opportunity to reinvest that capital into new opportunities that will deliver higher earnings growth and ideally with a lower risk profile and that it’s business as usual for us and so, we will always keep an opportunistic eye out on market opportunities and given our sort of reach in the market, you know we’d always be confident of being able to find those opportunities as and when we sort of need them. And then I suppose the final aspect I would just say about opportunities is that you know we operate in partnership with other investment partners where we co-invest in joint ventures and that’s another growth area for us, you know going forward. To date we have a, quite a diverse range of investment partners from private equity through to local authorities through to banks and other institutions and so, I think there’ll be opportunities for us to acquire assets in the future but in our partnership business with NewRiver co-investing alongside our partner.
Susan Freeman
So, it all sounds very positive and it’s, it’s really good to hear because it wasn’t so long ago that you know all the headlines were about you know physical retail being dead and obviously with Covid and you know so many purchases going online, you know it did look a little bit bleak but do you think investors have misunderstood you know the way retail is going and the opportunities, I mean from what you’re saying it sounds as if maybe they have?
Allan Lockhart
To some extent I do think that investors perhaps misunderstand you know retail. You know, in some ways investors are classic online users themselves because they tend to be quite cash rich, time poor. They’re not like the average shopper on the street and so to some extent maybe their attitude towards retail and retail real estate is determined by their own lifestyles but they may, investors probably represent less than 1% of the UK you know population so, I think that is definitely a factor. I think also that the sector does attract a high profile in the media because as I said earlier their viewers and readers know these brands, either retail brands operating in the high street or shopping centres and retail parks, so when there’s a negative story like a retailer that has gone into administration, inevitably is on the 10 o’clock news and I think that can erode confidence in our sector. That said, our sector has been significantly disrupted over the last sort of ten to twelve years by technology, not just the internet because the internet’s been around for decades but it was really the convergence of other technologies that came together roughly at the same time that has resulted in disruption and those other technologies include much faster broadband speed, it’s included the explosion in smart mobile phone technology, it’s including the growth in the very large social media platforms which in many ways are around now selling platforms and all of that you know came together you know roughly at the same time and what that meant was that you know quite a significant amount of consumer spending moved away from the physical store channel to the online channel and as a result the demand for physical space or retail physical space dropped relative to the supply of physical retail space, which has broadly remained quite constant and therefore the market got in turn and balanced position between the supply of that physical retail space and the demand for that physical retail space and in any market, whether it’s commodities or whatever, when you have an imbalance between supply and demand, it usually leads to negative outcomes and that’s what we’ve sort of seen in retail real estate you know over the last ten years with a reduction in rents, falling capital values, sort of higher vacancies and of course all of that’s really eroded investor confidence and that’s been the case really I would say up to the last sort of few years where I think today, you know our market place is probably in the best position it’s been for probably five to six years and I think that’s reflective of a number of reasons, one the consumer has proved to be more resilient, the consumers’ balance sheets in pretty good shape, consumers are wage growth is running higher than inflation, house prices have been broadly stable, job security is pretty good because unemployment rate is pretty low and all of that I think has led to consumers continuing to spend in the shops, so that’s been really positive but when it comes to our occupational market, a lot of the weak retailers have effectively left the market place, you know it was about three, four, five years ago, we had a period of very elevated tenant administrations and CVAs and you know what that has resulted in the weaker retailers leaving and with that the excess competition and that’s been actually quite beneficial for the market. In our experience most national retailers over the last ten years have been working very hard to improve their operational efficiency, a laser like focus on margin and margin growth which was profitability and they’ve been doing that through investing in technology, improving their supply chain efficiency but also including portfolio repositioning, closing underperforming stores and relocating into better performing areas and therefore the financial results of retailers are much better than they’ve been for quite some time and then I think the final positive aspect of our occupational market place is that omnichannel retailers for whom a physical store is vitally important, are getting better and better and that’s reflective of the investment that they have put in to how they fully integrate their physical store channel with their online channel and they’ve invested heavily in their digital capability as to how they communicate and transact with customers. So the omnichannel retailers which are big, big players and online retail sales are now taking market share away from pure play online and that’s been actually happening since about 2019 and that’s great for physical stores because physical stores in an omnichannel world are incredibly important.
Susan Freeman
And I know one of the things you were talking about on the Movers and Shakers panel was the amount of purchases that take place in stores when people just come back, you know, bring back something that they bought online and they end up sort of buying something that they hadn’t, hadn’t planned to buy. I mean, is that as important part of the sales for these retailers?
Allan Lockhart
Oh, vital. When I think of that panel session, I was using the example of Marks & Spencer’s who are one of the leading omnichannel retailers in the UK and their own research was showing that about 40% to 45% of their customers that buy online with Marks & Spencer’s will come and pick up that online order in store and 80% to 85% of returns by customers go back to the store by their customers. So what that is meaning is that the omnichannel retailers are incentivising their customers to effectively pay for that journey between the home and the store and they’re incentivising them to do that and that is really good for protecting that retailer’s margins, but the other added benefit they get is that again the M&S research shows this, that nearly 50% of their customers that come in to pick an online order up or return an online order, nearly 50% of them will go on and make a incremental purchase at the same time of that visit and therefore the omnichannel retailers are getting that revenue boost, which is great for their P&O and they’re protecting their margins by effectively incentivising their customers to pay for the journey. And we believe that Click and Collect, which is essentially what that is, is going to be the fastest growth area of the sort of online market and we’re starting to see the benefit of that flowing through even in our own portfolio because I mentioned earlier that retail parks in our view are highly compatible with online fulfilment as part of an omnichannel retailer business model and in our own retail park portfolio we’ve pretty much got 100% occupancy, which is just reflective of the, the demand for that type of space.
Susan Freeman
And I know you’ve referred to retail stores as the ‘real last mile distribution’, which is interesting.
Allan Lockhart
Well it’s, it is true, they are the genuine last mile distribution and you know if you talk to the retailers or the omnichannel retailers that, that is exactly what they’ll tell you. I mean I think it was really interesting that during Covid I think it was the case with Tesco’s, who are you know a big online retailer but at that time I think their online sales as a percentage of their total sales was probably about 7% and of course when Covid came along and you know many non-food stores had to sort of close down, Tesco were able to, to some extent take advantage of that because their online sales went from about 7% to 14% so they nearly doubled it in the space of about two or three weeks and they were able to do that without adding one extra square foot of distribution space, they leveraged off that growth from their food store estate and that just again demonstrates the value of stores in a omnichannel world and you know part of that online fulfilment.
Susan Freeman
It’s pretty amazing actually how the supermarkets particularly adapted to that sort of online rush during Covid, I mean you know because people who’d never bought online before you know didn’t have an option so, it must have been a very steep learning curve for them.
Allan Lockhart
Yeah and, and you know they’re great businesses and they were able to react very you know quickly, but they were only able to do that because they’ve got stores where people live and so they were able to you know utilise their stores to match the demand for that online fulfilment you know during Covid when you know there were a lot of restrictions placed on people’s movements.
Susan Freeman
And of course the downside of all the new technology is you know the problems retailers are having at the moment with the cybersecurity issues and part of the problem seems to be that people have systems that are not necessarily interoperable that they don’t really understand you know how, how they’re vulnerable to cybersecurity so I suppose this is also part of the learning curve.
Allan Lockhart
Yeah, exactly and, and you know obviously you know it’s very topical right now because you know Marks & Spencer’s have been subject to you know quite a significant you know cyber-attack which has definitely disrupted you know their, their business but you know the stores are still trading and you know it’s not as if they’re just a pure online player that, which I think will have been disastrous for them but when they’ve got a number of channels, physical store channels as well as that online channel, you know they’ve got that diversification in there which I think is helpful in an event like a cyber-attack.
Susan Freeman
Yeah, and it seems that you know quite a few of the retailers are affected and you know people are having to, to learn how to, how to deal with it. So, I was just wondering for people to you know to actually come to your shopping centres rather than press a button to buy their goods online, the experience has to be a particularly enjoyable one for them, what sort of things are you providing in terms of experience, you know, making the whole shopping experience easier for your customers that you didn’t necessarily provide five years ago?
Allan Lockhart
Well, experience comes in a variety of different forms and as a retail real estate owner, it’s very, very important for us to be highly focussed on customer experience and that’s something that you know we’re constantly working at and we’re utilising data to enhance our, our customer experience and the way I sort of try and think about it is from my own experience when I go to my local shops, so if I go to my local Marks & Spencer’s, on that one shopping trip I probably have about five to six experiences and it starts from when I access the car park, can I seamlessly get into the car park with a nice space, where I’m not squeezing up against somebody else’s car and sort of worrying around scraping my car or their car, and I don’t have to wait to get a car parking space. If I could do all of that, I can get in easily, that’s a good experience as far as I’m concerned. I walk into the store and it’s pleasing on the eye, you feel secure, aesthetically it’s attractive, those are experiences, good experiences and then you know you’re wondering down the aisles and you see something new and you know it might be a new food dish and you go oh that, that’s interesting I’ll try that, you know that’s, that’s an experience. For me, value for money is a great experience and you often spot some bargains in, in Marks & Spencer’s, so it might be you know a couple of packets of smoked salmon for £10 and you know I’ll go wow, that’s, that’s amazing value, I like that. That’s another experience I’ve had and then when finally you get to the checkout, you know the checkout team all talk to you and you know they’ll have a chat with you and what you’re doing for the rest of the day, and again that sort of social interaction is a great experience. So, the more we’re sort of like focussing in on how the retailers enhance customer experience and understanding that better, it’s then we can take those learnings and apply to what we do as the, as the retail real estate owner, so we’re looking at making sure that customers can access our assets as easily as possible, they feel safe and secure, they’ve got the right range of retailers and services that you know they will want to see and what they want to spend their money on, we want to make sure that, that they have a fun experience as well so, that there could be forms of like entertainment, new choices of operators, all of these things we’re, we’re really working on to try and improve that experience because you know at the end of the day what we need to do as a, as a retail real estate owner is attract more customers, persuade them to spend more money in our assets because ultimately that will feed through to better sales performance for our tenants, they become more profitable and therefore they will want to remain in our assets and the prospects for us to be able to achieve higher rents in the future is more likely when you have your tenants trading well and profitably and that’s what we’re really super focussed on.
Susan Freeman
So it’s interesting you mention parking because a lot local authorities are very anti car and if you try to go shopping in a high street you know these days it’s difficult to find somewhere to park or you can only park for a limited amount of time and I think in reality as you say people want it to be, they want it to be easy.
Allan Lockhart
They want it to be easy and preferably they would like it to be free and you know one of the big advantages that retail parks have is that the car parking is always at surface level and it’s free so, if you just think about a customer buying something online, they’re being incentivised to pick it up in the store and if they can access that store easily, you come onto a surface car park, you park you got and you’ve got 20 yards to walk into the store, pick up your online order and then you can leave and you’re not being charged for that trip, to stay in the car park, then you know that’s really sort of positive. Generally when you, you know when you think about multistorey car parks you know you’ve got time to sort of navigate your way through that, you might have to sort of park you car between two concrete columns and your stress levels might increase and then you get charged for the privilege of that so, car parking is really important you know as part of that sort of customer journey, customer experience. Now it’s fair to say that you know a lot of town centre shopping centre car parks are chargeable but what we do is we look at the pricing on our car parks in our shopping centres where we do charge, we look at that very carefully to make sure that we’re not running a charging policy that’s going to deter customers coming into our centres, but equally you know given that over 70% of our customers travel less than five miles, for a lot of our assets customers can walk in, they can cycle in and a lot of our assets you know are connected to the local bus network so there’s a number of modes of transport accessibility for our assets.
Susan Freeman
I was just wondering, when you decide which retailers or other occupiers to have in your centres, do you actually consult your customers, do surveys or do you just rely on data which shows you, you know which stores are doing well?
Allan Lockhart
Yeah, we are now utilising more and more customer spends data so we’ve started to partner up with Lloyds Bank. Lloyds have the biggest sort of market share of the UK domestic banking sector, around 27 million customers. I think the next biggest bank has about 12 million customers. And if you think about it, Susan, I think 70% of transactions now are digital, debit cards, credit cards etc and so you know all of Lloyds Bank’s customers’ transactions are being captured and, and that data is sort of being analysed and so we’re now accessing the data provided by Lloyds Bank and then we can sort of run our own analysis of that but it gives us incredible insights as to you know where customers are coming from, where they’re not coming from, their frequency of visits, their average transaction values. When they come into one of our assets, where do they typically make their first purchase, where do they make their second purchase and we’re utilising that data to support us making better decisions on almost every aspect of what we do as a retail real estate owner. So, obviously feeds into our leasing negotiations but it also supports us around making sure we’ve got the right tenant mix, it supports us around making sure that we have the right car parking pricing policy, it helps us around how we spend our marketing budget so that we can get a better return on that investment and we believe it supports us around our capital investment in our assets as well, you know, for example if we were to upgrade our entrances or invest in the aesthetics of our malls, again you know we can see whether that investment resulted in an increase in customer spend. So, data for us is super important, we’re utilising it more and more, we think ultimately it just leads to better decision making because our team have far greater insights and again, you know we’re following the retailers, I think it, earlier this year Tesco Clubcard celebrated its 30th birthday and the retailers have been collecting data for years and they’re utilising that data to provide a better customer experience and a more personalised experience and that’s what you know we’re trying to do as well.
Susan Freeman
It can be quite scary when they, they actually know what you want to buy before you know you actually want to buy it.
Allan Lockhart
Correct. I mean obviously the data that we’re receiving, we don’t get to see who the names of the individuals, I mean it’s very much post code analysis but it’s incredible you know data and it’s definitely the way forward and we just think it’s going to make us better managers or our multi tenanted retail real estate assets and that ultimately should deliver our performance and that’s why we’re, are you know investing quite heavily in, in this data but also our systems to be able to take this data, analyse it super quickly so that our asset management team and other teams within the NewRiver business you know have that real time insight to support them making better decisions on a more consistent basis going forward.
Susan Freeman
What do you do if you find that you have a tenant who isn’t performing terribly well, isn’t attracting footfall and you think you’d do better with you know something a bit more interesting and refreshing? What do you do, would you try to negotiate the tenant out?
Allan Lockhart
Well I think our, the first thing we would do is try to understand why that particular tenant is underperforming and then is there anything that we can do about that? You know can we provide some marketing support, communication support and we’ll look at those sort of options sort of first to see whether we can do things to, to support that tenant in terms of improving their underlying performance. Ultimately if we can’t do anything or it’s beyond our capability to do anything then you know I think we would ultimately seek to see whether we can replace that tenant with a tenant that you know is going to you know ultimately deliver a better performance and you know for us you know we want to make sure that we have tenants that are enhancing customer experience and you know ultimately tenants that are going to benefit from increased customer spend and, and therefore it should feed through to their underlying profitability because you know at the end of the day the sustainability of your rental cashflows is really determined by the underlying performance of your tenants. Lease lend doesn’t give you security of income as many landlords experience when the likes of Debenhams went down, you know and they might have owned a Debenhams store with a 20/25 year lease. Ultimately that gave them no security because the Debenhams business failed and that’s why that sort of underlying performance of your occupiers are so important because that’s what gives sustainability to future rental cashflows and as a retail real estate investor owner, that is what we’re super focussed on, you know making sure our cashflows are sustainable but have growth potential.
Susan Freeman
And in terms of lease length, I mean you mentioned the length of lease that you know used to be granted, what I mean from your point of view what is the ideal lease length these days bearing in mind you want to you know some agility, you want to be able to move things around when needed.
Allan Lockhart
Well in our portfolio our average sort of, or our weighted average lease expiry profile is probably around six years, but that’s sort of reflective I think over the last sort of 15/20 years, lease lengths have been coming down because occupiers want generally shorter leases, they want more flexibility, the changing in the accounting standard rules have also driven shorter lease lengths and we’re relaxed about that on the basis that the underlying performance of your tenants is good, they’ll stay, that’s why at NewRiver we have a retention rate when it comes to lease expiry or when a tenant has a break clause, you know well over 90% of our tenants choose to remain within our assets and that I think is just reflective of the fact that our assets are outperforming the wider market in terms of year on year spend growth and you know that’s reflective you know in our underlying performance of our occupiers, you know, so they’re, they’re generally in a better position, more profitable. Why, why, why close a profitable store, you know you want to remain there. So, in some ways the shorter lease lengths as well gives us the opportunity to capture some of the growth that we’re seeing in our portfolio in terms of that customer spend growth through higher rents. I think we’re probably six quarters now, six continuous quarters where our new leasing rents are higher than the previous passing rents. So that’s I think really encouraging because I think really for real estate companies, the next sort of five to ten years, the ones that will outperform will be the companies that deliver net rental income growth, I think that’s going to be the sort of defining feature of the market over the next sort of five to ten years. To some extent, you know, from 2010 through to the end of Covid, you know a lot of the performance was driven by you know yield compression in a market where the cost for capital was almost zero, you know interest rates were like super low and all of that, that’s not the case now, I can’t see that coming back. It will be operational performance and what that means for growth in your earnings it’s going to be the defining factor over the next sort of five to ten years.
Susan Freeman
And is there still an oversupply of retail or has the marketplace adapted and what sort of new uses are you seeing that you wouldn’t have seen in your, in your shopping centres before?
Allan Lockhart
There is an oversupply of physical retail when you look at the UK as a whole and the market will adapt to that but it will take time. But that can create an opportunity as well and there are other uses that are ideally suited for town centres, you know within our, within our own portfolio you know we’re working on a couple of projects to deliver you know quite significant housing, which is obviously much needed, but housing within town centres is a, is a very credible alternative use, generally supported by the planning regime and so I think we’ll see more housing replacing surplus retail over the next sort of five to ten years. We’re also seeing more services, you know things like medical services, multi practice medical centres, diagnostic centres and we’ve got quite a number of those sort of facilities in our portfolio and we think that in many ways town centres are the ideal location for those because it’s got all the sort of transport infrastructure and also you know if you think about it from a customer experience perspective, the ability to go to your doctor at the same time you’re doing your, your weekly shopping, it’s a connected trip and it makes a lot of sense so, and whilst the government, you know the strategy is to take the pressure off you know hospitals by investing into you know care within the communities then you know we think that’s a big opportunity so, you know we’re looking to try and do more in terms of provision of medical services within our portfolio, but also there is civic services where local authorities are providing services to their communities, again town centres are the best location for that so, you know we, we’ve initiated you know the amalgamation of several sort of library facilities within a, within a local authority area into you know into a single modern library facility that also provides you know community services so I think you know that’s another area. And then tapping into the increasing agenda on you know well-being, you know we’re seeing more leisure, particularly gym operators and other associated uses, you know coming into town centres and city centres so, you know the market’s dynamic, it’s forever evolving and whilst today we have an oversupply of retail, you know I would expect over the next sort of ten/fifteen years you know that surplus retail will be transformed into other uses that will perhaps have a more sustainable future longer term and therefore the market will move back into a more balanced position between supply and demand. You know, real estate at the end of the day is all about supply and demand isn’t it and so I fully expect that to happen in time.
Susan Freeman
And it’s interesting because the uses that you’ve mentioned are all things that you can’t do online for the most part, you have to, you have to be there so it does make a lot of sense doesn’t it.
Allan Lockhart
It does but then also I think town centres and city centres are the hubs where people come together to you know meet, to have some fun, to go for a meal, to go shopping etc and you know humans are very social people at the end of the day and, and I think that’s always going to be the case, it would be a pretty dysfunctional, lonely world if we’re all sat at home doing everything you know online and I just don’t think that’s going to be the future so, there’s always going to be a place, you know town centres and city centres as the meeting place for that social interaction and you know we’re strong believers in that, but you know that’s a big job to improve our town centres and the stakeholders that manage and run town centres and city centres, there’s a lot more that they need to do to improve that customer experience and you know we’re trying to play our part in doing that and I think that with better insights and better data, I think just generally town centres and city centres, the only ways is up really from here now, I think, we’ve gone through so much disruption over the last sort of ten, twelve years but there are definite signs of things starting to improve, you know, at the sort of national level.
Susan Freeman
And I think we, we appreciate our town centres more now, we had our, our experience of sitting at home and doing everything online and also I think with the increase of people not necessarily commuting into an office every day, you know there are more people around the town centres than there were before.
Allan Lockhart
Definitely, and I mean obviously I travel around and I’m often out visiting the NewRiver assets and indeed our partners’ assets and you know these are busy places and that’s great but it just shows the importance of these places, you know at the end of the day you could argue that they’re assets of community value, they really are and we’re strong believers in that but you know we’ve got to make them more pleasant environments, people have got to feel safe and secure, we need to remove the barriers for people coming into town centres so, things like you know car parking pricing has got to be sensible and not just seen as a sort of revenue stream for a local authority. Many local authorities I think need to get more switched on about how they serve their customers better so, there’s a big job to be done and there’s so much talk in the market about regeneration but I think sometimes the market just sort of thinks regeneration is about knocking buildings down and then rebuilding those buildings but actually, a lot of it is just down to the quality of the public realm, the accessibility, do people feel safe and secure, have you got the right range of retailers and services operators and leisure etc to really enhance that choice and customer experience and there’s a lot more that can be done that doesn’t necessarily cost you know lots and lots of money, so I think with a greater focus around customer experience then we could, I’m sure start to see some, you know substantial improvements in many of our towns and cities up and down the country.
Susan Freeman
One of the things I wanted to ask you about was the importance of public and private sector collaboration and I saw that your collaboration with Blackpool Council for the Blackpool town centre was the winner of the Estates Gazette Public/Private Partnership Award. I just wondered how important these relationships are, I mean especially if you’re talking about revitalising town centres where the local authority is you know very much involved and how you, how you measure the success of these collaborations?
Allan Lockhart
Well, I think public/private partnerships are absolutely vital to deliver the improvements that many town and city centres need because the private sector can bring capital but it brings also a lot of experience and expertise that perhaps local authorities do not have when it comes to you know managing multi-tenanted retail real estate assets, but local authorities are very important because they are the convening powers, they can make things happen but they can also access grant funding that you know in many ways is sort of required to deliver improvements so, putting the capability and the skillsets of the public sector through, whether that’s local authorities, combined authorities or mayors, together with the private sector, we think is actually a powerful platform that will deliver positive change in a much faster way than if it was just left to the private sector or just left to the public sector. So you’re right, you know we’ve been working very closely with Blackpool Council who own their shopping centre and we manage that on their behalf and you know that’s been a very successful collaboration but equally, you know, we’re working together with Mid Sussex District Council to bring forward a regeneration project in Burgess Hill because Burgess Hill is a growth town, the existing retail was not really fit for purpose in terms of their town centre for the quality of the catchment and the growth that they are seeing in terms of household population growth and business growth and you know we’re working closely with them to form a joint venture to deliver that project within Burgess Hill town centre and we think that’s the right way forward and I’m sure we’re going to see more public/private partnerships in the years to come.
Susan Freeman
That sounds very positive. Now, I know you headed up the retail group at the British Property Federation until relatively recently and that your colleague has now taken over that role, I just wondered what you particularly were lobbying for when you were in that role? Was there anything in particular?
Allan Lockhart
Yes, there were a number of things that we were pushing hard you know particularly with government. First of all was business rates reform. We think that’s incredibly important. Business rates have been, or the burden of business rates particularly on retail, leisure and hospitality has been way too high, unfair, and we need to see you know significant reform with regards to that, I mean we are starting to see some reforms coming through like shorter valuation cycles from five years to three years, the government has provided some business rates relief, particularly for very small businesses, obviously with market rents having fallen, you know business rates or rateable values have come down and that’s obviously beneficial but we’d like to see more to improve the position for our occupiers so that’s like an ongoing campaign and it’s something that the British Retail Consortium have been lobbying very, very hard with the government as well, you know, it’s a case, I think Sainsbury’s pay nearly £500 million of business rates every, every year, where you know some of the bigger online operators are just paying a fraction of that so, there is a really unfair system that’s at play here so hopefully, I think the government do recognise that but it, you know, the challenge really is that the fiscal and the debt position of the UK government, like many other governments, it’s not on the best of positions right now so, I think that’s the challenge for them is how do they introduce a more fairer system without the government sort of seeing a significant reduction in the revenue they generate from business rates.
The second sort of key area that we were working on was reform of the Landlord and Tenant ‘54 Act which obviously, you know, you’ll be an expert on, Susan, but I mean it’s ridiculous that many, many sort of occupiers enjoy the benefit of security of tenure within the ’54 Act, in other words it means that they have the legal right to renew a contract when it comes to the end of that contract and I don’t think that exists in any other aspects of English law, I don’t think it really exists in most modern jurisdictions and I can understand why it was introduced, it came in just after the Second World War and I think you know the government at the time wanted to provide protection to tenants at that time when the country was in a very vulnerable situation and I think they were looking to protect tenants from exploitation but of course you know the retail real estate world is so different from you know 1954, you know we have a thing called online businesses now, it’s a very fast-moving and dynamic market and I don’t think that Tesco’s needs protection from NewRiver or any other tenant frankly. So, we would like to see the ’54 Act reformed and the removal of security of tenure because I think whilst it remains in place, I think it’s anti-competitive, anti-investment, anti-jobs, anti-growth and I think with the removal of that, it will free up improvements in all of those areas. So that’s a key area as far as I’m concerned and I think the British Property Federation and the Retail Roard that I was a member of.
And then the final area is around decarbonisation of, of the built environment. For retail, it’s different from offices, you know an office owner effectively has far greater control over things like the M&E and the fitout and the lighting and therefore they’re able to instigate changes because they have control broadly of all of that but obviously with that comes, they’ll have to absorb the costs of all of that. In retail it’s different, you know 90% of our carbon emissions is in the space that we let to our tenants and we tend to let space, shell and core because all of our tenants have different fitouts, they use different materials in their fitout, some have refrigeration, some don’t, they’ve all got different heating systems, different lighting systems, so they will ultimately be responsible for reducing their carbon emissions in the space that they occupy from us. So what we’ve been trying to do at NewRiver and indeed at the BPF was to encourage the government to promote greater collaboration between tenants and owners, particularly when it comes to retail real estate because you know it’s only through collaboration that collectively we’ll make a meaningful reduction in those carbon emissions and that’s something that we’ve been pushing hard for you know greater collaboration and getting the government to find ways to not force but really encourage greater collaboration.
Susan Freeman
And it sounds like a good idea because you have to work very closely with your retailers to actually affect any of these, these things.
Allan Lockhart
We do. I mean the encouraging thing we have at NewRiver, I think something like just over 60% of our floor area is let to tenants that have made public commitments to reduce their carbon emissions. I think in retail it’s different because although 90% of our carbon emissions in our assets is in the space we let to our tenants, for tenants 90% of their carbon emissions is in their supply chains, so that’s where they’re primarily focussed on right now. The job we’ve got to do is to try and get them to also focus on the space, the carbon emissions in the space they occupy, but we’re starting to see more and more of our tenants recognise that and coming out with you know public commitments to reduce their carbon emissions, which is good because it’s, you know, it’s important.
Susan Freeman
And I imagine the customers want that as well, they want to see their favourite brands actually doing something about sustainability.
Allan Lockhart
They do. When you do surveys around customers’ attitudes, you know the environment is important to them, so it’s important that we all do our bit notwithstanding you know the sort of more recent pushback we’re seeing on the other side of the Pond, you know at NewRiver we’ve had a, our net zero strategy was put in place a number of years ago and you know we’re monitoring that and tracking our performance every year, we’re making, you know, we’re making good progress in terms of what we have to do in our own small way to improve things.
Susan Freeman
And I saw that you’re the first company to partner with Royal Mail on its new parcel locker network, I sort of wondered, you know I know it’s sort of early days but presumably that’s something that also helps drive additional footfall into your centres.
Allan Lockhart
It does and you know parcels are a major, major growth area for Royal Mail and so they recognise the importance of being close to you know where people are and so we’ve entered into a partnership agreement where we’re rolling out their, their sort of parcel lockers into our assets and the way we sort of view it is that we get a modest income, which is great, but it really is all about an added customer service and experience and you know that should result in a, in a bit more footfall coming in and generally you know people coming into our assets tend to spend money so, with more footfall, the probability is you’re going to get higher spending so, you know we view it as a sort of win-win, a win for the Royal Mail getting access to our customers and a win for us, you know it enhances customer experience, increases spend and we get a, you know we get an income stream off the back of it as well.
Susan Freeman
It also made me wonder whether there are things that you have experimented with you know just sort of trying new things, as one does, and whether, whether anything didn’t work quite as you expected it to and sort of got abandoned?
Allan Lockhart
Well, I can’t think of anything off hand where we’ve necessarily tried something that didn’t work, I mean we’re, we try and be as thoughtful as we possibly can to make the right decisions. I would say when you look back in the past, you know some of our acquisitions didn’t work out the way we, we thought they would and the most important thing about that is to make sure that you properly understand why an acquisition in the past didn’t work out, so you can take those experiences and you can factor those into your future acquisitions when you’re underwriting and profiling risk etc, so that ultimately you know your decisions just get better and better going forward, you learn from your experiences in the past what worked and what didn’t work. Nobody has a perfect batting record, nobody, but the most important thing is to recognise that and just make sure you learn from previous experiences and that’s what we strive to do day in, day out.
Susan Freeman
You must have learned an awful lot leading the company through the last few years?
Allan Lockhart
Well, I mean Covid was an incredibly sort of challenging time, I mean it happened so quickly. I wasn’t quite sure how, how the business was going to react and perform but we already had Microsoft Teams embedded into, into our systems so we were very quickly able to get online and sometimes when the back is against the wall, it brings out the best in your people and in some ways you know our communication and our coordination was better than it had ever been before and there was that sort of collective, almost wartime experience you know around getting through this and I think we navigated our way through Covid very well and ultimately we sort of came out of Covid arguably in a better position than where we were when we went into Covid and our team did an amazing job. I mean we were fortunate in that you know a large part of our portfolio remained open and trading because a lot of our tenants are you know, were classified as essential base retailer and that you know clearly gave us a definite advantage, but nevertheless it was an incredibly you know challenging period but I’m super proud of the way our team rose to that challenge and were able to you know navigate our way through that pretty well.
Susan Freeman
That’s very, very positive. And just finally, I assume you spend your downtime shopping, do you have any favourite shops?
Allan Lockhart
Well, I’m, I’m not one of life’s great shoppers, but I do like going to food shops and I suppose like one of my favourite shops is Home Bargains, so I live up in the Wirral at the weekends and so the three shops I sort of frequent on a reasonably regular basis is Marks & Spencer’s, Tesco’s and Home Bargains. It’s just amazing what you can get in Home Bargains and the value for money, I’m a Scot heritage and I think it’s fair to say that Scots really do value value for money and it’s incredible what you can get in Home Bargains, absolutely fantastic retailer and I love going shopping there so, that’s what I quite like to do.
Susan Freeman
Sound good, I’m going to have to try that. Allan, thank you so much for your time, that’s great and thank you for recording the podcast.
Allan Lockhart
Well it’s a pleasure, I really enjoyed the conversation, Susan, thank you for inviting me.
Susan Freeman
Thank you, Allan. It’s really good to hear that despite the negative headlines, UK retail is alive and well and adapting to the challenges of the omnichannel era.
So that’s it for now. I hope you enjoyed today’s conversation. Please join us for the next PropertyShe podcast interview coming very soon.
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