AEW aims to capitalise on the structural changes in the price of high street premises by buying retail properties at distressed prices and repurposing them for uses more valued by local communities.
A 22,000 sq ft retail and office block in Brentwood, a commuter town on the Crossrail line, was bought for £4.4m. AEW plans to repurpose the building, which currently has 13 commercial tenants, for mixed use development, including commercial on the ground floor and residential on the upper floors. Charlie Royle, Executive Director and Portfolio Manager at AEW, an affiliate of Natixis Investment Managers, says: “Recent changes in permitted development rights mean we can often change the use to residential without the need for full planning consent.”
A 65,000 sq ft island site in Bristol, currently multi-let to national, international and local occupiers, was bought for £9.9m. The site has the potential for repurposing to a mix of residential, office, hotel and student housing. “Although Bristol is one of the big six UK cities, it has relaxed living, is close to countryside and benefits from people relocating from bigger cities.” notes Royle.
A 260,000 sq feet site on Royal Windsor’s historic Peascod Street, on which a hotel, supermarket, shops, , a carpark and long-lease residential currently operate, was purchased for £20m in a distressed sale. “The site requires capital investment and a hands-on asset management approach,” says Royle. He said AEW’s plan is to repurpose the derelict retail accommodation towards current occupier demand and focus on leisure activities to expand the night-time economy in the heart of Windsor.
All three of these assets fit with AEW’s core strategy of buying retail property at distressed prices, managing the income streams and changing the assets to alternative uses that focus on the needs of local communities. Alternative uses range from residential buildings to leisure, hospitality and specialised living spaces such as retirement living and student accommodation.
“High streets are desperately in need of repositioning,” says Royle. A key part of AEW’s value-add proposition is to obtain planning permissions and create development opportunities for third parties. “We are enablers of change,” says Royle. “We do the heavy lifting, which is always a challenge. Most institutional investors will not do this, but it is a core competency and differentiator for us. The key is always to have a Plan B and C – if one change of use doesn’t work, we will switch to another.”
In repurposing retail assets, AEW applies characteristics of ESG through a focus on town centre repositioning, targeting social and living uses. In addition, it aims to retain as much of the original fabric of the buildings as possible.
AEW’s urban real estate strategy has gathered pace as e-commerce has progressively impacted the high street over the past decade. This shift has accelerated in the wake of the pandemic, offering AEW and its investors further opportunities and, potentially, more value. Royle says: “Pricing has come down to realistic levels as owners accept that rents have to be rebased. This means we are able to buy in more core locations than we originally anticipated.”
“Banks are slowly starting to close on some retail-backed loans,” Royle adds. “That is a key turning point in this market.”
For further reading:
- AEW Research: Asia Pacific
- AEW Research: Essential Housing
- AEW Research : U.S. Economic & Property Market Perspective Q1 2021
- AEW Research : Asia Pacific Market Perspective Q1 2021
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