A novel solution to the UK’s housing shortage that would avoid building on the shrinking green belts around existing urban areas is being put forward by FTSE 250 real estate investment trust New River. A review into the company’s portfolio of investment properties, which includes shopping centres, retail parks, convenience stores and public houses has highlighted what is considered the realistic potential for ‘hundreds’ of new flats to be built in the under-utilised ‘airspace’ above and around commercial real estate.
Bricks and mortar retail has been feeling the pinch as online shopping corners an increasingly greater share of spending. In its second quarter trading update, New River reported that the occupancy rate across its portfolio had inched down to 96.2% from 96.5% in the first quarter and the average retail rent across its retail investment properties to £12.35 from £12.36 ft2. The Royal Institute for Chartered Surveyors (RICS) recently confirmed a negative trend within the retail property sector, commenting that members have reported “empty retail units [are] becoming increasingly visible.”
New River believe that as well as profitably making use of untapped potential within the trust’s existing real estate assets by building and selling new residential units, such a move would also boost its existing retail portfolio.
Chief executive Allan Lockhart stated:
“We see a great opportunity to bring in residential accommodation right in the town centre adjacent to our retail assets so you can create a proper and sustainable community hub. Residential is highly complimentary to retail because it brings in increased spending power which all the retailers benefit from.”
New River believes that the most obvious places where it is likely to receive planning permission to build residential units into its existing holdings is above car parks and on empty land around its retail parks. However, converting upper floors of malls into apartments, or adding residential levels, could also be an option.
Addressing the long standing deficit of affordable housing supply in the UK, without new developments creating an urban sprawl that reduces already precarious natural ecosystems, is a notoriously problematic balancing act. While increasing the density of residential properties and populations in existing urban areas is not a problem free solution itself, doing so in the right way and with strong planning is probably a necessary evil. If New River’s proposed approach to investing in integrating new residential units into existing retail and commercial properties is successful it is almost certain that other big landlords will follow suit.