Are councils gambling on their future buying shopping centres?

Beleaguered could describe both the state of the high street and the financial position of local authorities, yet from Shropshire to Somerset, councils up and down the country have spent tens of millions of taxpayers’ money purchasing shopping centres.

But with major chains leaving town centres in droves, critics have said it could be the next Icelandic bank crisis for local authorities. We asked three councils who have invested in retail: is it worth the risk?

Shrewsbury

Shrewsbury

Shropshire Council raised eyebrows last August when they spent £51m of their capital budget on the Darwin, Riverside and Pride Hill shopping centres in Shrewsbury.

Shrewsbury, an unassuming market town based on the River Severn, once boasted the longest row of uninterrupted independent shops in England, but with several major chains leaving the town in 2018, its three town centre shopping centres meant a bloated retail offer.

So council leader Peter Nutting said they had to step in to make Shrewsbury as a ‘destination’ again.

Prior to purchasing the properties, Shropshire council had around £150m in general reserves available for investment.

With banks yielding a poor return and inflation remaining high, the real value of their reserves was going down. So they decided that they had to liquidise some of it and bring in a yearly income whilst giving their ailing town a centre a kickstart.

Defending the purchases, Peter Nutting said: ‘The purchase of Shrewsbury’s main shopping centres will support the economic growth and regeneration of Shrewsbury town centre.’

According to retail expert Nelson Blackley of Nottingham Trent University, these were not unworthy reasons for stepping in.

‘On paper, these two reasons both make some sense,’ Blackley says.

‘The problem is that if they are buying shopping centres in a mid-market town, which are [generally] the ones that are struggling and the owners are keen to sell. You have to be careful that you’re not buying something that will fail.

‘It’s a huge risk.’

According to Cllr Roger Evans, Lib Dem leader of the opposition in Shropshire, the council have a guarantee from the previous owners of ‘at least’ £2.5m a year, which will give their balance sheet an immediate short-term boost.

However, the guarantee only lasts for two years which could put the council in a difficult position down the line.

‘It was short-sighted,’ says Cllr Evans.

‘It has got the council out of an immediate hole. But long-term, what will be the capital value of the asset?’

Shrewsbury’s House of Fraser closed in 2018, just two years after a high profile refurbishment, with other major chains including Maplin and Toys R Us leaving the town last year too.

HMV, which is currently inside one of the council-owned shopping centres, looks set to go imminently and rumours swirled that Marks & Spencer would be shutting their Shrewsbury store in 2019, before being spared from the axe for the time being.

The picture has been further muddied after it was revealed in September that all three shopping centres are still registered in Jersey, months after the council bought them and promised to bring them back onshore, with the management company who advised the council to buy the shopping centres now running them.

To Cllr Evans and many others in the town, it’s a concern.

‘We’re all against tax dodging and we want things brought onshore,’ Evans adds.

‘Companies that trade in England should have their companies registered in England and pay all the appropriate UK taxes.

‘To be registered in Jersey, a tax haven, why is that when it’s in the public sector?

NewStart has asked Shropshire Council for clarification on the current tax status of the shopping centres but they have so far declined to comment.

2018 was not a great year for the council and due to overspend, the chief executive imposed a recruitment freeze in August which was followed by a procurement freeze in October.

Then in November, an edict was issued to all staff asking them to work from home once a month.

To Cllr Evans, it’s made the £51m they spent on the three shopping centres look like a curious bit of business.

‘Hindsight is a wonderful thing,’ he says.

‘I think the council overpaid. It was never tested in the market.’

‘I think it will be looked on as not as a good investment and [the shopping centres] could be a white elephant.’

Liverpool

Liverpool Central

Liverpool Central Shopping Centre, standing next to Liverpool Central station, could be regarded as a safer bet than the three shopping centres in Shrewsbury, which retail expert Nelson Blackley says ‘will generate a lot of footfall without trying.’

Buying the shopping centre was part of the council’s ‘Invest to Earn’ strategy, which uses the council’s ability to borrow at low rates to stimulate profit that is then reinvested in services, and follows similar deals such as the purchase of the Cunard Building which now generates a rental income of £2m a year.

‘If you can’t get a tenant mix in [Liverpool Central] to facilitate a good return then you’d have a problem,’ says Cllr Claire Slinger of Liverpool City Council.

They say the strategy has been developed to protect the most essential services in the face of a £444m cut to the council’s budget by 2020 since 2010.

However, busy footfall doesn’t translate into sales if shoppers are going online to buy what they’ve bought in shop windows.

YouGov research on shopping habits around Black Friday and Cyber Monday found that 18% of 18–24-year-olds will find a product in store and buy it online while still in the store.

It’s a phenomenon called ‘Ghost Shopping’ and one in 10 people now admit to doing it.

Cllr Slinger admits that the shopping centre had been on the market for ‘some time’ but the council wasn’t concerned at the lack of private interest.

She is confident they can, in spite of market trends, generate a decent income and called the purchase a ‘no brainer’.

She adds the council ‘are not retailers’ so the centre has been leased to a management company who will deal with tenants and attract shoppers.

‘You look at your risk level and mitigate it through your tenant mix, and how long the leases are,’ she says.

‘And whether you think if that tenant left, could you get a tenant in who can pay the same amount of rent or more?’

In such a fast-moving sector though, is this realistic? And will people even be using shopping centres in 5 years and beyond?

‘I would fundamentally disagree with that,’ says Cllr Slinger.

‘If you go into any provincial shopping centre in the UK – are they, or are they not, packed out?

‘Liverpool’s certainly are.’

‘From a shopping perspective, unless you delete every female in the country there will always be women who shop for clothes rather than sitting at home and ordering online, when you can’t tell what the quality is.’

Cllr Slinger admits that retail is riskier than it was but is confident the location of Liverpool Central means the council has no buyer’s remorse.

‘It’s income-generating already, even in a market that’s in decline.’

Bolton

Crompton Place, Bolton

It’s often said that Bolton’s town centre is too large, and with one in four shops in the town vacant the deputy leader of Bolton Council, Cllr Ibrahim Adia said it required ‘bold intervention’ from the council to revitalise it.

Last year the council spent £14m on Crompton Place, a tired-looking precinct that has a gigantic BHS shaped hole in it since the retailer left in 2017.

They’ll downsize the retail units before selling it on as mixed-use retail, leisure and housing development and already have several suitors interested, according to Cllr Adia.

Crompton Place stands opposite Bolton’s town hall, which is one of the best examples of Victorian civic splendour in the country, and the authority has ambitious visions of turning the adjoining market square into an Italian-style piazza – but first, they’ll need to deal with Crompton Place.

‘Retail has been challenging, it’s fair to say,’ says Cllr Adia.

‘We had a particular problem in that for our town centre, we’ve got a sprawling retail area. It’s not concentrated. It’s meant that there isn’t a focus for shoppers.’

Cllr Adia admits that his own children, who are at university age, will not go to Bolton town centre to shop.

Instead, they’ll come in to go to the cinema, or head to Nandos. The world is changing quickly – but can local authorities and the retail sector keep up?

When speaking to NewStart, Cllr Adia lamented the loss of Woolworths to Bolton town centre, ‘which left a pretty big gap in our shopping centre.’

It’s perhaps a point which highlights the scepticism that many feel when they hear councils are buying shopping centres.

Woolworths closed its doors over 10 years ago, so are they on the ball enough?

‘The risk is, [councils] may be doing it for good reasons but it won’t help the long term,’ says retail expert Nelson Blackley.

Cllr Adia says it’s only a risk if the council doesn’t have the right vision.

‘We had to send the market a very strong signal that we have a viable town centre, we borrowed money which has transformed the possibilities of the town.’

‘We’ve mitigated the risk on two levels. It’s a lot of money but we’ve borrowed it over a fairly lengthy period of time and we get very attractive interest rates.

‘We have some shareholdings in Manchester Airport and get dividends from them. We’ve used some of that to repay the loan.’

‘That’s the message for our residents. The investment will have no adverse impact on the ability to deliver services that they rely upon.’

Bucking the trend?

Footfall in the Shrewsbury shopping centres actually bucked the national trend went up in 2018, and the Crompton Place council investment in Bolton helped entice a Beijing-based construction firm to invest in their £1bn town centre regeneration plans, but Nelson Blackley says in three or four years time ‘these purchases will be interesting to observe,’ as other councils ponder making similar investments and the retail grim reaper circles.