Australia Covid-19 , Housing and planning

Using pop up & temporary leases to reactivate local retail centres impacted by Covid-19

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Summary

  • Trends in retail, such as the shift to online and the rise in ‘experience retail’, have had major implications for the role and overall economic health of traditional retail centres and high streets across Australia.
  • While the impacts of the Covid-19 shutdown are yet to be fully understood, social distancing and lockdowns have had a significant impact, and there is the potential for acceleration of some of these trends, such as the shift to online retail.
  • This briefing discusses several examples where temporary uses have been enabled by not-for-profit and government-led organisations as a tool to prevent decline in local commercial centres. Although these may not be new ideas, but it appears a good time to recap these approaches.
  • These case studies provide some practical takeaways for local governments who are interested in implementing their own scheme to support temporary uses as a low-cost measure to activate local centres.
  • This is part of a series of LGiU Australia briefings looking at economic wellbeing and the economic impacts of Covid-19, including: Local governments and a ‘three-lens’ approach to economic recovery and Financial impacts of Covid-19 on Australian local governments.
  • This briefing will be of interest to local government councillors, and those in economic and community development and property management.

Briefing in full

Structural Changes in Australia’s Retail Landscape

Changes in retail have had major implications for the role and overall economic health of traditional retail centres and high streets across Australia.

The source of these changes is due in part to the rise of online retailing over the past decade, with average growth in online shopping of 14.3% between 2014 and 2019, largely at the expense of bricks and mortar retailing. For large retailers in particular, it is predicted that additional market share will be lost to online stores in 2020.

‘Experience retail’, which has a focus on socialisation and customer relationships, has become increasingly important for a centre to thrive. In many (but not all) cases, high street retailing in established centres has adapted to these structural changes, transitioning from a centre of convenience shopping to a cultural destination. The uses that underpin this – such as cafes, galleries, and smaller stores with an emphasis on local production and customer relationships – can’t be easily replicated online and are therefore less prone to displacement.

The Coronavirus Effect

With the outbreak of Covid-19 and subsequent lockdowns, many people have become increasingly accustomed to using technology to socialise and conduct e-commerce and online retailing.

This is expected to galvanise the existing structural changes occurring in our economy – particularly the decline of traditional retail. Major reductions in Gross Domestic Product (GDP) and dramatic increases in the national rate of unemployment are also predicted as a result of months of nationwide lockdown.

Based on current projections, the beginning of the First World War and the Great Depression are the only economic events comparable to the likely impact of Covid-19. In the case of WW1, major economic contractions were brought about by a halt in global trade, coupled with disruptions caused by workers leaving jobs and enlisting in the war effort.

This scenario has clear parallels to the current impact of Covid-19, with significant disruptions to global supply chains and many people out of work overnight.

The economic strain imposed by the Covid-19 fallout is also likely to exacerbate the underlying cost-of-living pressures which had been affecting spending across a range of income groups prior to the crisis.

Retail and hospitality are some of the sectors most vulnerable to these conditions, due to their nature as customer-facing industries reliant on tourism and discretionary spending.

While easing restrictions have seen people return to shopping centres, retail strips continue to struggle under difficult conditions.

The Role of Temporary Uses

Increasing obsolescence of traditional retail, fast-tracked by changes in consumer behaviour and a contracting national economy, pose a significant threat to the health of our urban centres. However, there is potential for temporary uses to play a supporting role in economic revitalisation post-Covid-19.

Local government policy to promote temporary use can provide a valuable mechanism for utilising vacant premises and countering cycles of economic of decline and dereliction throughout our urban centres. These strategies offer a low-cost means of regeneration in the absence of typical consumer demand or capacity for funding by local government.

As they rely primarily on human and creative (rather than financial) capital, temporary uses can endure if expected economic upturns are slow to arrive, or simply present an interim solution in the event of a strong recovery. Following the GFC, the number of temporary creative and social enterprises in the centres of several major cities in the UK increased significantly, demonstrating the resilience of these initiatives to economic slowdown.

A number of case studies illustrate how local governments could harness this resilience and creative potential within their own communities.

Empty Shops Network

The Empty Shops Network, begun in the UK in 2008, is a project which provides guidance and reduces barriers to local initiatives and community groups seeking to access temporary space.

In partnership with a local government authority, the Network facilitates the development of temporary use programs and schemes within communities across the UK. This can involve locating potential spaces and brokering agreements with landlords, as well as sourcing community projects.

Often, legal complexity presents an institutional barrier to entry for aspiring temporary-space-users. As such, one of the Network’s key roles is to ease the complexity of administrating such programs, providing free, open source documentation, planning guidance and how-to guides for potential project proponents.

The Empty Shops Network has enabled municipalities throughout the UK to capture the potential benefits of temporary uses, facilitating several ‘pop-up’ projects, and publishing an ‘empty shops toolkit’ to inform similar projects.

Renew Newcastle

During the mid-2000’s, Newcastle’s CBD reached the peak of a decline caused by the construction of suburban shopping centres and perpetuated by the closure of the city’s steelworks. The result was over 150 vacancies in former retail premises along the main street, and increasing stigma caused by crime and urban decay.

Despite the economic decline, the costs of entry posed by entering into formal leases were prohibitive to local enterprises, with owners seeking to retain the value of their properties in the belief that large-scale urban renewal would eventually occur. In reality, the market value of many of the buildings had fallen below the cost to their owners of using them.

Renew Newcastle (a not-for-profit) was created to make these spaces temporarily available to artists and creative initiatives, brokering access to vacant properties. Once a space was identified and the property owner agreed to participate, Renew would seek local projects of a creative or cultural nature.

  • Rather than a traditional lease arrangement, licence agreements (similar to leasing a billboard for advertising) were negotiated. These agreements were designed to operate on a rolling 30-day basis to ensure that property owners would still be able to keep premises on the market, and to avoid the obligations, rights and costs of a normal lease.
  • Renew Newcastle would hold the insurance (public liability and property), with the occupant covering the cost of any necessary refurbishment, as well as all ongoing usage costs (water, electricity etc). This negates the bulk of costs imposed by traditional tenancies, lowering barriers to entry for projects, and (crucially) eliminating the cost of failure.

During its years of operation (2008-2017), the Renew program housed 230 local creative initiatives in 80 properties in Newcastle’s CBD, with 35 projects reaching a point of commercial viability and moving onto traditional leases. A formal cost-benefit analysis found that Renew Newcastle provided a cost-benefit ratio of 1:14.4.

Meanwhile Space

Meanwhile Space is a London-based social initiative, set up as part of the Revitalising Town Centres Policy under the UK Government immediately following the GFC, at the peak of economic recession in the UK.

Similar in its mission to the Renew model, Meanwhile Space links spaces across the metropolitan area which have been vacant/under-utilised over long periods with start-up and development stage businesses in need of affordable space.

Under the Revitalising Town Centres Policy, temporary (or ‘meanwhile’) leases can be granted to tenants, which permit the use of a vacant business property temporarily, provided the landlord is looking for a long-term tenant.

Meanwhile Space acts as a property manager for participant landlords, sourcing and managing start-up, and acting as an intermediary between the landlord and tenant (similar to a real estate agent). Through this, the cultural and social value of an area is preserved while the economic setting remains unclear.

From its inception to 2017, the initiative supported more than 600 tenants in accessing affordable spaces across several London boroughs.

Local Government Implications

Based on these case studies, several takeaways can be drawn out for local governments seeking to facilitate temporary use to combat the economic repercussions of Covid-19. There is value in:

  • creating an open source database of vacant retail and other commercial premises
  • creating a template or framework for licensing/short-term lease arrangements between owners of vacant premises and creative/social enterprises
  • providing clear, readily accessible advice and information to those seeking to participate in a temporary use program. This could include planning advice and guidance on setting up a temporary use arrangement
  • creating or providng funding to an organisation or department to broker agreements for temporary use between seekers of affordable space and owners of premises in commercial precincts. This would be similar to a Renew Newcastle or Meanwhile Space type model
  • considering how regulatory approvals for temporary use can be facilitated and the process streamlined at minimal cost.

Modelled on Renew Newcastle, Renew Adelaide was established in 2010. The City of Adelaide recently announced they were considering asking Renew Adelaide to focus its efforts on reducing vacancies in the CBD, as part of Councils initiatives to “support CBD traders to help boost the economy and lure more people back to the city”.

More broadly, the Brookings Institute has identified four thoughts that local governments can draw on in when considering actions to support their local retail recovery:

  • Profit-sharing leases, in the form of a modest base rent that switches to a percentage of gross annual revenue after a breakpoint, can help small businesses in tougher times. These leases would give tenants the flexibility to survive lean times and landlords are invested in the tenant’s success.
  • ‘Place-based governance builds resilience’, that is: place-based governance organisations can enable collective action. This could be to improve shared spaces, foster business mentoring and relationships, promote destinations, and respond to crises.
  • Understanding how Covid-19 will accelerate the convergence and hybridization of conventional retail business models, and the implications for employment opportunities and skills. “Just as grocery stores are increasingly selling prepared foods or doubling as coffee shops and bars, restauranteurs are experimenting with new formats including food halls, trucks, and markets, as well as multiple ways to sell their product, such as app-based delivery”.
  • “Retailers and their suppliers were already in the middle of multiple industry-wide paradigm shifts”. Shrinking profit margins and business closures will be accelerated by Covid-19, consolidating the grip of corporate retailers and pushing out remaining small businesses, unless there is some form of intervention.

Comment

Often, solutions to issues of economic decline and urban decay are centred on large-scale redevelopment and infrastructure projects. While these may have a role in smoothing cyclical declines in construction activity, these undertakings are primarily lead by state and federal government – and complementary local initiatives to work with existing business communities are often sought by local government.

While not a new idea, temporary use stimulus strategies present a short-term option for activating local centres, providing a low-cost solution which relies primarily on the creative and social capital within a community. Temporary use strategies provide the flexibility to overcome unfavourable economic conditions, both cyclically and in the long term.

Currently, the main costs and risks to entry into these arrangements lie in brokering the use of premises, and navigating complex legal and planning frameworks. Local councils or partner organisations can play a crucial role in lowering these barriers by taking cues from successful programs in Australia and elsewhere.

As identified in these case studies (and in the work of the Brookings Institute), a ‘place-based governance organisation’ could be established separately from the council as vehicle to enable collective action at the local level, and establishing or partnering with a not-for-profit (as in the case of Renew Newcastle) can provide the vehicle for bringing together landlords, tenants, retailers and others to deliver innovative local initiatives.

As our local centres come out of lockdown, temporary uses may well provide councils with a simple yet effective short-term tool for activating empty shop fronts.

This is part of a series of LGiU Australia briefings looking at economic wellbeing and the economic impacts of  Covid-19, including:

For more information on this briefing or to contact LGiU Australia email mzierke@sgsep.com.au

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