Between the Lines: Flexibility is the key to filling up vacant commercial spaces

Published on Thursday 31 December 2009 21:14

NO-ONE yet knows how long the financial sector will take to recover but until it does, one thing is certain: due to a general downturn in the economy, an unhealthy surfeit of retail and business space is likely to afflict our cities and towns for some time to come – one symptom being a retrenchment by the banks themselves.

The most adverse effect is likely to be found on the high street, where the reduction in bank branches will compound the number of units left empty by retail closures or by expansion plans being put on hold – even on "prime" thoroughfares. A similar downturn in "back office" activity will also affect the market in business space.

So where does that leave landlords, many of whose "shareholders" is the ordinary man in the street because some of the UK's biggest public and private sector pension funds are invested in retail and office property?

Do they just batten down the hatches and wait for the storm to blow over?

That's what happened in the wake of earlier financial crises in the 1970s and 1980s but this latest one has been of such magnitude that merely hoping to sit things out until life returns to normal may not be an option. Landlords and developers will need to be a lot bolder than they have been in the past.

Fortunately, a precedent was set recently in Scotland which should give the property sector hope that local government may help by recognising the need for planning flexibility, albeit within the existing planning framework.

One of our developments is Harbour Point, an office building close to Musselburgh town centre. Given the current economic climate, the occupancy rate is at a high level, more than 90 per cent. But this is, in part, due to a bold move on our part – and being fortunate enough to deal with an equally bold, and flexible, local planning authority.

Recently we received an inquiry from Curves, a global branded provider of fitness centres for women. They liked what they saw and said they would be prepared to take a lease on 2,000 square feet of space within the building.

The only problem was that in planning terms, Harbour Point was designated Class 4 (for office use) and a fitness centre came under the auspices of Class 11 (leisure use).

So we applied for part-designation of the latter to East Lothian Council who – understandably – weighed up carefully the pros and cons of any change, in particularly any possible effect on current planning policy. In the end our application was approved and the outcome was a "win-win" situation for everyone involved. Our company filled vacant accommodation, the tenant obtained the space it wanted and the council not only was given a new source of business rates but, through its approval, opened the way for the creation of six new local jobs.

Meanwhile the planning framework remained intact because all the property involved remained within the commercial sphere – for which Harbour Point had been zoned.

There are doubtless many other situations across the country where a planning change of use could be granted without compromising local planning policy. This one small example indirectly led to six new jobs; just think what the benefits might be if it was repeated several times over in all of Scotland's 32 local authorities.

We were fortunate in dealing with an authority that has an enviable reputation in working alongside business to the advantage of the wider community.

For the foreseeable future, Scotland will need bold and intuitive landlords and developers if much of the vacant commercial space is to be occupied; but this will only be achieved if the response by local councils is adequate.

&#149 Iain Mercer is group managing director of Cosmopolitan Developments, based in Edinburgh.