Industry news

What if the best property investment was PBSA?

Nothing to do with anxiety disorders, PBSA – more commonly known as Purpose Built Student Accommodation  – is basically the new student halls of today. And despite Brexit and fears of other political uncertainties, global investors are continuing to invest in PBSA in the UK. Why? Mostly because it offers stable income with strong year-on-year rental growth prospects. Especially when you consider that the more mature asset categories, such as offices, commercial assets or properties no longer are. @PuiGuanM from @estatesgazette even pinpointed earlier this week that the student accommodation market is shedding its alternative class label to become [an attractive?] market on its own. Here are a few reasons that may explain why:


à While students tend to prolong their studies in economic downturns – they prefer to wait for the job market to improve – which helps the student housing market gets stronger.


à Also creating stronger demand for student housing is the international education strategy proposed by the government which aims to boost overseas student numbers by 30% to 600,000 per year by 2030.


à  Given that student accommodation to this date remains largely under-supplied at a national level, more projects – and opportunities to invest – will be set into motion within the next couple of years.


But generating the optimal level of returns is not necessary as easy as building then renting an asset. More than any other categories of consumers, students have growing expectations – and their mental health is one of them – that need constant management and could lead to significant investments. It is then no surprise to see that a whole category of them are looking to rent higher quality student accommodation. And the good thing is that studies now indicate that price may not be a determining factor with, in many cases, students being eager to pay a higher rent in exchange for better living standards. A dynamism that is worth looking into.



Occupying the centre ground



Remember the Kirkcaldy shopping centre that was being auctioned off for £1? While this might be most notable as an excellent piece of marketing by the auctioneers – the eventual sale price was £310,000 – those with keener memories will recall that many of those parties interested in bidding saw it as a residential development opportunity.


The Postings – struggling in a changing consumer environment and losing £200,000 a year – came to mind this week after a couple of corporate announcements were made to the press. On Monday, shopping centre owner intu revealed plans to replace car parks and a House of Fraser store with 1,000 homes at its Lakeside scheme in Thurrock, Essex; this was followed on Thursday by Patrizia marketing The Walnuts in Orpington as a residential redevelopment play.


While intu’s plans are larger-scale, what happens at The Walnuts could in time be more significant. Fronting onto Orpington High Street, and woven into the fabric of surrounding buildings, what happens here could become a model for town centres across the country. Orpington’s town centre vacancy rate is below the national average at around 6.5%, but residential conversion is still an attractive option; if it can work somewhere where town centre remains relatively strong, it can surely work in places that have seen shops decimated in recent times.


For intu, it’s a similar story but with some crucial differences. With voids rising and falling valuations putting pressure on loan covenants, intu has seen an opportunity to diversify its portfolio and create some assets that will either generate a better return, or create value and provide some useful capital to work with. Without knowing the full ins-and-outs of the decision, it seems likely that new homes will be more useful than surplus car parking.


At a time when many (most?) of the UK towns are over-shopped, and many local authorities are struggling to hit housebuilding targets, conversion of retail space into homes – returning to their historic use in older communities – makes a lot of sense. And as both current investors and private equity spy some opportunities, we can expect there to be more of this sort of thing.


This is not to say it will be easy. Retail locations will have to consolidate and coalesce around a new, smaller commercial centres, and there will surely be missteps on the way. The solution is unlikely to be widescale permitted development rights for shops-to-resi, following the problems that have been seen with similar policies for redundant office space. But the local authorities that manage this process best have a genuine opportunity to kill two birds with one stone.


There remains a need for physical retail space – both in and out of town – but the requirements are less than they used to be. The internet and other changing dynamics have seen to that. But if high streets can be sensibly re-sized and helped through this shift, they may yet thrive once more.


Andrew Jefford, Account Director, Innesco 



These words were the response of real estate journalist David Hatcher, tweeted out on Wednesday, to the news that three shopping centres owned by Oaktree Capital had breached their loan-to-value covenants.


The Kingsgate Shopping Centre in Dunfermline, The Rushes in Loughborough and The Vancouver Centre in King’s Lynn have between them lost £19 million in value – down 18% in the past 18 months – and as a result the LTV on the assets has risen to 78%, against a covenant of 75%. At the time of Paperclip going to press, no resolution had yet been found.


This wasn’t the first such breach this cycle – New Frontier Properties and RDI REIT have both battled with similar issues in recent months – but David was right to point to the start of something. Each week brings news of yet another CVA (Arcadia) or portfolio downsizing (M&S), and these will only see valuations fall further, especially for secondary assets. We can expect many more LTV covenant breaches in the coming months, and losses that have up until now been on paper are about to be crystallised.


Make no mistake: this will be a painful process, but it is a necessary one. It is also long overdue. Remarkably, given the extent of the downturn, some of the pain of the financial crisis was deferred. Newly-nationalised banks, faced with distressed loans wherever they looked, often chose to ‘extend and pretend’ – that is, roll over the debt and hope that valuations would in time rise again. To be fair most valuations did indeed return, but the attitude of hoping-over-expectation has never really gone away.


There can be no such wilful blindness this time, and the economic gravity is surely now inescapable, especially for secondary assets such as those owned by Oaktree Capital. And with valuations in other sectors such as offices, industrial and residential continuing to hold up, lenders will be that much more inclined to grasp the nettle as and when loans default and retail assets come under their control.


This might sound a touch bleak, but the situation demands honesty rather than crossing of fingers. But long-term there will be considerable upside. Accepting the reality of a situation, even if that means deeper falls and greater losses in the short term, means that any recovery can start that much sooner. When the bottom of the market has been found, we can once again consider growth.


Realistic valuations of retail space will enable landlords to accept more realistic rents rather than hold on for a higher-paying tenant that never quite arrives. Lower rents might just be the difference between a shop being a viable business or not, and if so this should feed through to greater occupancy rates. For towns that have been blighted by voids, simply having occupied properties – even at rock bottom rents – will be transformational.


For what it’s worth, it seems that larger, prime shopping centres and major city centres retain a relevance and value to retailers that has seen rents and values remain much more stable. But for older, secondary space it’s far from clear what the prospects are. And if the future isn’t in retail, alternative uses will need to be embraced.


Nobody knows whether the UK is truly ‘overshopped’, or whether substantially lower rents will help make high street shops viable again, but the sooner we find out the better. Because once we know how big a problem we’re dealing with, the quicker we can get working on a solution.


Sustainability firmly on the menu across industries

In the world outside property – what some might call the real world – Greta Thunberg, a sixteen-year-old environmental activist from Sweden, was this week celebrated on the cover of TIME Magazine, who named her one of ten Next Generation Leaders. This comes after the same magazine named her one of the most influential people of 2019, and a nomination for the Nobel Peace Prize. Sustainability is, without a doubt, as relevant as ever. Our industry is, of course, not isolated from this – and, in particular, this week, sustainability has been a central theme.


In a bid to help diminish food waste, all major British supermarkets have pledged to adopt a series of actions that will contribute to the UN’s goal of halving food waste by 2030. The food retail sector has previously been criticised for not doing enough to stop food waste, which amounts to 10.2 million tonnes in the UK every year. Tesco, Sainsbury’s and Waitrose are all amongst the retailers that have signed the pledge.


Reports also surfaced this week that Pret a Manger is in advanced talks to buy rival Eat, with alleged plans to turn the competitor’s 94 stores into vegetarian outlets – joining the existing four ‘Veggie Pret’ outlets in the UK. Pret currently owns some 400 stores, and the move would mean that a significant part of the company’s business would be completely meat-free. Also on this bandwagon is Greggs, which this week announced that it expects “materially higher” annual sales and profits as its newly launched vegan sausage roll was ‘flying off the shelves’. Overall sales rose by 15 per cent in the first quarter, proving once again that consumers’ appetite for vegan is by all means on the rise. With the meat industry responsible for significant portions of total greenhouse gas emissions, this is good news not only for health-conscious consumers, but for our planet’s natural world.


Finally, Farfetch, the online luxury retailer, this week announced a new initiative as part of its sustainability strategy ‘Positively Farfetch’. In a pilot project, customers will be able to resell unwanted designer handbags in return for Farfetch credit, which can then be used to shop for new items on the site. The news comes amid the online platform recording a 39 per cent increase in revenues in the first quarter of the year. The company’s chief executive said that it was well-positioned to continue gaining share of the growing online personal luxury goods market.


Sustainability is now arguably a KPI for large corporations, and they provide strong benefits for the companies themselves in the form of good PR and CSR. We live in a world where the effects of climate change are becoming more and more strikingly evident – and yet there are naysayers that claim climate change is a myth. It is important that the retail industry, which is worth over £20 trillion globally, fights the cause of planet earth and does all it can to oppose the effects of climate change and conserve resources. After all, as the saying goes: no one can do everything, but everyone can do something.


“MAPIC Food served us some ‘food for thought’ this week” 


#MAPICFood started and came to end this week for a second consecutive year and as we returned home from Italy, we realised once again that food and beverage is not only here to stay when it comes to property and retail, but it will only grow stronger as we see more new food & beverage concepts emerging.

As a result of its growth, the #F&Bsector has attracted increasing investment from funds and private equity. In Milan this week, Vincent Mourre, CEO and co-founder, Whitespace Partners, pointed to €17bn in acquisitions during this and last year, including #CocaCola for #CostaCoffee, #Permira for Hana Group and Restaurant Group for #Wagamama among the major deals.

#Darkkitchens are the next big industry disruptor around the world and it couldn’t remain untouched at #MAPICFood. The trend was discussed in a conference session featuring key players from the industry such as #Deliveroo, #UberEats, #Glovo, #Amrest and #OracleF&B. Europe could host as many as 5,000 dark kitchens, servicing 200,000 restaurant brands, within five years according to Stephane Ficaja, General Manager Northern and Southern Europe at @UberEats. He recognised that dark kitchens “is a massive opportunity” and it’s not surprising considering apps now account for 39% of delivery visits – a rise of 14% year-on-year – and the takeaway industry has grown to be worth £4.9bn – according to consumer research firm NPD, as #BBC reported a few weeks ago.

At the same time casual dining restaurants are closing down and their place takes a new wave of food halls that have become the hottest place to eat. Market Hall will open its fourth venue at Canary Wharf’s Crossrail Place in 2020, following its announcement earlier this spring about the opening of the UK’s largest food hall in the former BHS in #London’s #OxfordStreet in the summer. Market Halls’ success and rapid expansion is hard evidence of consumers’ desire to still go out and share experiences.

Whilst the increase of online shopping is making waves in the high street, F&B concepts is a great opportunity for landlords to rethink their leasing strategies and ensure their assets respond to the consumer’s need to have access to a good selection of food offer when visiting retail environments. At the end of the day, choice is king!


What price social value?

At its most fundamental level, real estate is just like any other asset class – merely a vehicle in which to invest money, produce income and, hopefully, generate a profit upon exit.  Add in other factors such as the debt markets, the asset class’s inherent illiquidity and the sector’s cyclical nature and it’s easy to see why industry observers get so hung up on deals.

Deals have become the only benchmark by which we can truly measure the health of the market. Trophy assets, individual properties and portfolios changing hands perpetually for new record prices have historically been taken as a signal that all is well in the world (while the reverse has the opposite effect). More recently, a growing collective social conscience alongside greater public scrutiny has emerged to challenge this conventional wisdom.

Earlier this year, @networkrail was seen to have pulled off a stellar deal in its disposal of some 5,000 railway arches to #Blackstone.  The portfolio attracted an intense bidding war and eventually achieved a sale price of around £1.5bn – some £500m in excess of market expectations.  So far so good. By all conventional standards, the sale of an under-utilised portfolio to one of the world’s most sophisticated and well-capitalised investors and thereby releasing significant sums back into the public purse surely represents a ‘good deal.’

Yet, a report this week in The Times poses some questions over whether the sale price alone should outweigh other considerations such as the needs of the existing retailers and communities in and around the arches. The report, from the @NAOorguk, concluded that when selling public assets, “Government should not, in trying to achieve the best price, lose sight of the wider societal impact when selling assets.” While this sentiment is unlikely to permeate every corner of the private sector in any hurry, history tells us that, where the public sector leads, business often follows.  Could we be at the beginning of an era in which assets are not necessarily sold off to the highest bidder, but to the best custodian?

Anecdotally, we have heard of retail landlords favouring independents over the national multiples, with even some large REITs quoting up to 40% of their tenant line-up as independent traders.  Although, they could undoubtedly secure greater rental income from national brands, there is a social dividend that comes from working with operators who are rooted in their communities and who better serve the needs of the local market.  Though it may be difficult to value this in conventional terms, all indicators point towards consumers demanding a mix of local and independent operators alongside more established brands.  Meeting this need and finding a way to accommodate diversity over ubiquity is surely the way to remain relevant and to preserve value over the long term.


Coffee retail: wake up and smell the innovation

There is arguably no retail sector in the world currently more exciting, dynamic or downright necessary than coffee – and I’m sure countless big-city professionals will agree for their own personal reasons. At an industry level, it’s a market rife with activity across acquisitions and innovation that is currently worth around £10.1bn in the UK, having achieved 20 years of sustained growth.

2018 was hot for major acquisitions of coffee chains by international conglomerates. We saw JAB Holdings acquire a majority stake in Pret a Manger for £1.5bn and Coca Cola acquire Costa Coffee – a deal which completed in January this year. You may have noticed in the news this week that Coca Cola is gearing up to launch its brand-new Costa ready-to-drink product; a move that, according to Coca Cola CEO, James Quincey, aims to “target mid-day slump” and signals innovation in the company’s product portfolio. Though blurring lines between product categories is only a small segment of the major transformation underway in the coffee sector, with the changing face of coffee on the high-street taking the cake (pun intended) for the most significant and worthy of our attention in the run-up to #MAPICFood in Milan next month.

In recent years coffee shops have become the epitome of cultural hubs in retail. Smaller chains and artisan cafés are on the rise, and each is a destination to work, relax, socialise and learn; it is open, green, bright and welcoming; it sells paraphernalia, quirky homeware, unique gifts, jazz music, 90s board games – the list goes on. By becoming all-around cultural destinations, coffee shops are harnessing the power of community and inclusion to tackle the troubles faced by today’s high-streets head-on.

Even the biggest chains are realising the central importance of becoming, not only coffee specialists, but cultural forums in order to drive footfall. Complete sensory in-store experiences, such as in-house roasting and tasting sessions, are prolific. Starbucks is a prime example of this having unveiled its third Reserve Roastery in Manhattan in January; a sprawling outpost of sheer barista theatre, housed within an incredible three-storey copper, concrete and wooden store design “inspired by the history of manufacturing” in Manhattan’s meatpacking district. You can read more about Starbucks’ new store in Dezeen’s picture article.

Digital of course also plays a huge role here, with ‘Instagrammable experiences’ becoming one of the biggest drivers of footfall in the modern age. Some coffee chains are embracing technology even further, capitalising on the new fronts for customer engagement opened up by digital; smooth transactions, interactive menus, loyalty apps and smart payment systems, to name but a few. Chinese start-up Luckin Coffee also featured in the news this week, announcing its plan to open a store every 3.5 hours to dislodge its biggest market rival, Starbucks, after securing $150m in Series B funding earlier this month. Luckin has enjoyed unbelievable caffeine-induced growth in the last year and a half, exploding its presence from nine stores at the end of 2017 to 2,073 at the end of last year.

An outstanding feature of Luckin’s business model is its seamless integration of digital. Luckin enables its customers to order their coffee via an app and then watch live-streaming video as their coffee is made and delivered within 20 minutes. This core focus on technology, discounts and delivery has played a significant role in its rapid growth and sets a number of exciting new precedents for the whole of the foodservice sector.

We’ve merely scratched the surface here when it comes to the future of coffee, which is looking increasingly bright. Speaking on behalf of the whole Innesco team, we cannot wait to dig even deeper into the topic at MAPIC Food, which will kick off its conference programme with “Coffee: the new black gold rush”, exploring everything from authenticity, merchandising, and emotions in customer experience, to the reasons why coffee is the best bet for multinational food groups. It’s gearing up to be a tantalising week of #foodservice insights, and if you are yet to register, it’s time to wake up… and smell the innovation!

Andrew Smith, Senior Account Executive, Innesco



What lies behind JD Sports’ success?

Despite the gloom on Britain’s high streets, the athleisure brand just unveiled a double-digit leap in profits that makes it standout and question what the brand is doing right that the others are not. More to the point maybe, why is JD Sports obviously thriving while Sports Direct continues to struggle?


Listening to experts have us assume that part of the answer lies in the different customer bases the two retailers serve with the former focusing on younger consumers, offering them everyday athletic gear that they rarely wear to the gym. Furthermore and while Sports Direct has been focusing on expanding its UK portfolio of retail businesses, JD Sports has developed a robust online presence and is actively growing overseas. Overall, success seems to have emerged as a combination of both strong market positioning and essential strategic choices. But what if JD Sports hadn’t adapted its format to make it more attractive to Millennials by seizing the so-called athleisure trend?


It is one of those markets which has expanded rapidly over a short period of time to the extent that some believe it has reached its saturation point. A study conducted last year by Morgan Stanley however reports that the athleisure sector, which has increased 42% between 2011 and 2018, is expected to grow by another 30% by 2020. More than just benefitting from it, it is fair to say that JD Sports has efficiently seized it, especially when you consider that their stores were still mostly male-oriented only just 5 years ago.


JD Sports intelligence partly lies in the fact that they have been able to adapt their format and make it attractive for females too. It’s also key to note that 40% of the products they sell are exclusive to the chain, creating more occasions for the consumers to shop there instead of anywhere else or to look online for lower prices.


Staying way ahead of the curve has proven to be an efficient way to drive business, particularly in the retail industry. This nevertheless requires constant attention and confidence that the next trend can be turned into a consistent source of profit. It might be relevant today for JD Sports but not all retailers have been so lucky in the last few years as some trends are now beyond extinction mode. Food for thoughts they say.


On a lighter note, it is almost Easter and with the weather finally turning to fantastic, we hope the Millennials in each of you will enjoy the egg raffle wearing a brand new pair of super trendy white trainers.




Sometimes it can feel like there’s too much news. This week alone has seen new developments in the ongoing Debenhams saga, a boardroom coup at Superdry, falling sales at Boots, and Philip Day launching a takeover bid for Bonmarché. It is, to quote a journalist of Paperclip’s acquaintance, “a competitive news environment”.


So we’ll forgive you if you missed’s announcement that it is trialling a £2-a-week washing machine rental scheme. It is a subscription service – so no usurious APR or extra charges – and that in itself brings significant benefits; for too long, operators such as BrightHouse have used the rent-to-own model to charge lower-income consumers over-the-odds for basic household goods. The disruption of this scheme causes will be a good thing. is banking on being able to leverage its delivery network and buying muscle to reduce costs – and if that means a better deal for consumers then so much the better – but the initiative has wider implications too. Is the much-vaunted ‘sharing economy’ about to go up a gear?


There remains a suspicion that the rise of the sharing economy is more theoretical than actual. Uber trips are in truth replacing bus journeys, not car ownership. There’s very little real-world difference between songs bought outright and those being streamed via Spotify. And isn’t Airbnb just a modern interface on an age-old marketplace?


If renting-not-buying is ever to be widely adopted, washing machines are precisely the sort of product – used daily, but a significant purchase – that will be at the vanguard of the shift. The theory that millennial lifestyles make renting more attractive is about to be tested; if AO’s scheme is a success, we can expect the range of available products to expand, and other operators to enter the market too.


There are reasons to be sceptical, and we have been here before – many readers will remember a time when every high street was home to a branch of Radio Rentals – but there does seem to have been a shift in consumer attitudes. Think about how many people you know lease rather than own their car, and you get a little insight into how mindsets are changing.


This leaves the question of how retailers will need to adapt to a world of renters rather than buyers – how deep a change will depend on how widely renting is embraced. Big-ticket items seem sure to have a rental market. But will richer people embrace rental as a way of regular upgrading? Will AO eventually stop selling appliances altogether and just focus on leases? Will handbag rental become more widespread as people seek to freshen their look? And clothes? Will “retailers” even be the best names for the companies that thrive, or will they be more akin to finance houses with logistics operations tacked on?


The implications for retailers are at the same time huge and unknowable, but any shift towards renting will have a profound impact on the shape of the sector. The successful retailers will be the ones that shift to give consumers what they want, whether that’s in exchange for a one-off payment, or for a reasonable monthly fee . . .


What went wrong with Debenhams?

In a time when department stores seem to have lost their spark, this week has been a particularly busy one for Debenhams. On Monday, it was reported that Mike Ashley (Sports Direct) was considering a cash offer to take over the chain for 5p per share, valuing it at a mere £61.4m. The offer, which was Sports Direct’s latest attempt at gaining control of the chain, followed a revelation on Friday that Debenhams was looking to raise £200m from existing investors, causing the share price to plummet 61 per cent. While Mike Ashley’s bid led to the share price soaring 42 per cent, it was eventually snubbed by Debenhams, who instead announced it had secured a £200m refinancing deal.

In a bid to cut costs, Debenhams has already announced it will be closing up to 50 stores – and this week it was disclosed that the lease for the company’s headquarters, located at Regent’s Place in the West End of London, had been surrendered in favour of moving staff back to the upper floors of its Oxford Street flagship store. British Land, which owns the Regent’s Place premises, announced it had relet the 175,000 sq. ft. space to Facebook, which now occupies a total of 290,000 sq. ft. at Regent’s Place. Sergio Bucher, Chief Executive of Debenhams, commented saying that the move would mean material savings, while customers would still be able to enjoy a store trading over five floors.

When it comes to struggling high street department stores, Debenhams is in good company with, amongst others, House of Fraser, which last year announced it would close 31 of its 59 stores – including its Oxford Street flagship. One could argue that the pair are just two amongst many retailers hit by declining high street footfall and the advent of online retailing – but are these external factors really the entire story, or are internal issues equally to blame?

It has been argued that the reason Britons have fallen out of love with the department stores they once adored is due to a lack of innovation – or not jumping on the experiential bandwagon that is said to be the saviour of physical retail. As a case in point, one can look at what thriving department stores are doing differently. Harrods, for example, recently launched its first-ever podcast to explore the luxury fashion sector through a series of one-on-one conversations – a move that is sure to put the department store firmly at the forefront of the luxury retail market. Meanwhile, Selfridge’s has been reinventing its shop floor to offer customers an experience that cannot be duplicated online, for example by introducing the UK’s only free wooden indoor skate bowl. Looking outside the UK, French department stores – the so-called les grands magasins– are dusting off their marble floors and gilded adornments to revamp their offering for a younger consumer. Time will tell if some of Debenham’s £200m will be used to ramp up on customer experience – and what the future of Debenhams will be. One thing is for sure: the British high-street stalwart needs to up its innovation game if it is to stay afloat in the ever-challenging retail market.