JLL appointed to advise on alternative use potential of a UK-wide retail portfolio

Challenge

JLL were instructed to review the alternative use potential of c.40 retail assets across the UK. These were largely retail parks and shopping centres that were underperforming in their existing use. JLL’s cross-sector taskforce assessed the portfolio to establish whether there was underlying development value at any of the sites, including understanding the current and future performance of the assets in their existing use. The work was undertaken in three stages which enabled the client to focus their resource on the assets with the most alternative use potential:

1. High level review of each asset to identify which had underlying alternative use value
2. A full market review of assets identified to establish which uses drive the highest value
3. Implement strategy to realise the alternative use value identified on priority sites

Solution

An initial high level review of each site was undertaken in the first instance to identify those sites with the strongest underlying alternative use potential. A cross-sector team from JLL’s regional and London offices were engaged so that we had the best local market expertise to advise on each site. We provided a proforma for each site which enabled us to effectively identify assets worth reviewing in greater detail.

Following on from the initial review we were able to undertake a full market review of the sites with identified development potential. This included a review of local planning policy to establish what was feasible from a planning perspective and identify any development restrictions. Each alternative use was then assessed, reviewing local market performance, comparable schemes and development pipeline. We also provided a clear recommendation on potential achievable values and recommended quantum of space to avoid market flooding. We reviewed a range of alternative use markets including residential for sale, build to rent, later living, student, office, life sciences, data centres and logistics. For each asset, we were able to determine the highest and best use for the site, by assessing the relative potential margins generated by each sector in the specific asset locations. Each report provided clear recommendations and next steps.

Results

As a result of the second stage of work, three sites were prioritised for immediate work to realise alternative use value. JLL worked with the client and appointed architects on three selected assets in order to form development strategies for the sites, which focused on reducing the quantum of retail, and introducing better performing use classes to diversify the income stream. Using our local and regional market expertise, we were able to feed into the design stage to advise on optimal unit mix/floorplates, as well as the scale and size for each alternative use. We advised on the layout of separate use classes and focused on key synergies to ensure good occupier and investor demand. We also made recommendations on how to optimise the existing retail space and activate the public realm to create a sense of place. As ESG was at the heart of the strategy, we considered ways to minimise demolition. Ultimately, JLL were able to bring together a number of teams across the sectors and regions to identify assets with the most development potential, devise a development strategy and work with architects to provide market-fit design input.