21 July 2021

Reshaping spaces is not just an economic imperative, but a political one

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It’s no secret that the last 18 months have hit retailers hard. With so many of us forced to turn to online retailers, many traditional shops have gone to the wall and commercial vacancies have increased. In truth though, traditional retailers were already in serious trouble well before the pandemic.

The rise of online retail since the turn of the millennium has hit traditional bricks and motor retail and this has fed into higher vacancy rates. In 2005 retail had the lowest vacancy rate across all types of commercial space, by 2015 it had the highest rate and the situation has only worsened since then – many towns and cities have seen their high streets become pockmarked with empty shops and stores, each vacant property sucking a little bit of the soul out of the place. 

The pandemic has only accelerated these trends, and it seems unlikely that they will reverse anytime soon. But it has also caused other forms of commercial space to come under pressure. Offices are the most obvious example, with many workplaces lying all but empty thanks to the rise in home working. While reports of the death of the office are certainly exaggerated, it’s unlikely many firms will snap straight back to the pre-Covid five days a week model. It’s more likely we’ll see a hybrid model where staff spend some time in the office and some at home. That inevitably means firms considering whether they need smaller premises, and expanding companies looking at more modest premises than they might have done a few years ago. 

But, as we argue in a new Centre for Policy Studies report, empty shops and offices aren’t just an economic issue, but a political one. Rejuvenating high streets will be a key way that voters decide whether the Governments ‘levelling up’ agenda is working or not. It’s precisely in those regions where the issue is worst that the Conservatives made its largest gains at the 2019 election. The north-east, which has the highest vacancy rate in the country – 19% compared to the national average of 13% – is also the region where the Conservatives made the largest proportionate gains, with gains equal to 24% of the seats in the region. Not acting swiftly to regenerate high streets comes with big political risks. People don’t expect levelling up to transform their local area overnight, but they do expect improvement, and high streets are key to how people view their local areas, with 7 in 10 saying they judge a town by the state of its high street.

So, if we are to fulfil Boris Johnson’s promise of ‘building back better’, what should the Government do?

One priority is freeing up businesses to repurpose and recycle commercial space into other uses. The Government’s recent Class E use changes have helped a lot in that regard, but there are still many barriers to be removed. For example, many minor changes such as adding in an extra entrance or exit, or letting in more light on a commercial frontage, are currently covered under the planning system which means it is costly and time-consuming to carry them out. It would be much easier if the Government brought such non-nuisance alterations into the permitted development framework. 

But more fundamentally, it’s also about councils not getting in the way of necessary changes to commercial space in their area. Because they decide how much commercial space there is and where it will be located, councils are integral to how high streets recover from the pandemic. That’s why we argue that the first part of each council’s new local plan should be an accurate assessment of how much commercial space their area actually needs, something they are often unenthusiastic about because losing commercial space means losing business rates revenue. Councils that fail to do this by the end of 2022 should have a plan drawn up for them by central government, whereas councils which draw up a plan on time should be rewarded and gain access to an Environment Improvement Fund for aesthetic and other changes to help rejuvenate commercial areas.

It’s not just a matter of browbeating local authorities though. The right incentives also need to be in place, and at the moment they aren’t. For example, the Business Rates Retention Scheme works on the basis of total commercial space in an area, even if that space is lying vacant. If the council were to allow vacant shops to be converted into homes, then they would lose out. Understandably, often prefer to have empty commercial space than new housing, given that commercial property is taxed at seven times the rate of residential property. 

So, the retention system needs changing – vacant commercial property should be subtracted from the total so councils no longer lose out when commercial space is recycled into residential. Converting empty shops into homes and flats has the potential to be a major source of brownfield development. Even before the pandemic it was estimated that up to 40% of retail space was surplus to requirements, enough for 456,000 homes, or enough for more than half a million if converted into small flats.

This is important politically because the more empty properties people see in their area, the less they will accept the need to build on greenfield areas – recycling empty commercial space into residential or other uses will take away this factor and make it easier for the Government to sell the very necessary planning reform to the public and MPs.

As the country starts to recover from the economic maelstrom of the pandemic, policy urgently needs to shift to make it as easy as possible to reshape space and build back better.

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Jethro Elsden is a Senior Data Analyst and Researcher at the Centre for Policy Studies.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.