RETAIL

EVOLUTION
COST MODEL
FIVE SECTOR-CHANGING
PRESSURE FACTORS
While retail is still performing adequately, there
are key factors changing the value of property.

MAINTAINING VALUE
The evolving retail market needs innovative and
flexible spaces for the next generation: creative
solutions are emerging.

RIGHT SIZE, RIGHT MIX

The balance needs to be right in order to
maintain footfall, respond to changing buyer
habits, attract a wider demographic, and create
great places for people.

An edited version of this article

first appeared in Building magazine
in January 2019
COST MODEL RETAIL EVOLUTION – 01/19

RETAIL
EVOLUTION
Despite reports of the death of the retail centre,
the truth is that owners, developers and local
authorities are adapting their spaces and assets
in new and diverse ways. The resulting concepts
demand evolving cost models as rents stall
and cost inflation continues. Ben Agyekum of
AECOM reports.

2
RETAIL SPENDING HAS RECALIBRATED BACK TO ITS
TWO PER CENT YEAR-ON-YEAR GROWTH LEVEL, LAST
SEEN ABOUT FOUR YEARS AGO, WHILE ONLINE SALES
HAVE INCREASED RAPIDLY IN RECENT YEARS.
—

M
edia reports of the
The fact Google has opened a store in
demise of the UK’s retail
centres — both high
DESPITE THAT, PRESSURE ON London and the growth of Amazon Go
streets and out-of-town BRICKS-AND-MORTAR RETAIL IS stores shows even companies born online
believe that physical stores have a place
shopping centres — have
increased in the past few
INTENSE, FOR FIVE REASONS. in the future.
years. But is this an accurate picture?
Retail spending has recalibrated back
to its two per cent year-on-year growth 1/
Saturation. Although the sector has
performed adequately in the past four
years, it has struggled to maintain the
3/
Macroeconomic factors. Stagnant
pay has reduced purchasing power, and
recent years have seen market shocks
level, last seen about four years ago.
While online sales have increased strong growth it showed between the late such as the falling value of sterling and the
rapidly in recent years, the Office for 1990s and the highs of 2007/08, before associated rise in the price of imported
National Statistics recently revealed the financial crisis. Some significant goods. In the three months to August
that sales at bricks-and-mortar outlets retailers, especially larger anchor 2018, however, UK pay rose faster than in
still account for nearly 82 per cent of all stores such as British Home Stores and any other quarter since the financial crisis.
sales in this country. Toys’R’Us, have disappeared entirely as
a result of competition, discounting and
online platforms. Where rents have risen
and contract length of smaller shops is
4/ Supply factors. A number of retail
developments across the UK have either
stalled or been cancelled altogether,
linked to anchor tenants, the loss of these leaving retailers that can expand looking
big names has had a knock-on effect on for alternative locations or shifting
smaller firms. According to Local Data investment elsewhere. Town-centre or
Company, a net 1,700 chain shops were brownfield sites are difficult and time-
lost in 2017. consuming to redevelop. That decreases
speed to market and makes the

2/ Technology. As retail moves online,

brands are growing more cautious in
terms of the number, location and size
development more susceptible to
changes in the market cycle, which
contributes to market uncertainty.
of the units they seek. A decade ago
a mid-sized retailer would have about
400 stores around the UK, but today many
might trade from 150 or less. Some are
5/
Government policy. There is a
perception the government has done
little to alleviate the situation. The rise
not expanding into any new stores or in business rates at a time of declining
shutting shops entirely. Online retail footfall has affected many retailers,

82% has also changed the way people use

physical shops. They are increasingly
particularly small high street businesses.
In some cases it has even contributed
The Office for used as showrooms, to try products such to some high streets and town centres
National Statistics as electronic goods or just to see what becoming community no-go areas.
recently revealed items look like, with a view to making the
that sales at bricks-
and-mortar outlets purchase online. The positive news is
still account for that this behaviour points to a continuing
nearly 82 per cent need for stores.
of all sales in
this country.

3
COST MODEL RETAIL EVOLUTION – 01/19

SOLUTIONS
The evolving retail market requires innovative
and flexible solutions for the next generation
and creative solutions to physical assets are
emerging. The ability to analyse data, for example
about consumers’ choices, preferences and
interests, will be key to realising the benefits
of these solutions. Some involve reinvigorating
existing retail developments or reconfiguring and
repurposing retail units; others look to convert
retail to residential or last-mile logistics, or a mix
of uses to ensure vibrancy and 24/7 engagement.
Together, these ideas have the potential to revive
our high streets and ensure town centres remain
vibrant places to live, work, play and shop.

4
CREATING DIFFERENT
EXPERIENCES
High streets and out-of-town centres With 78 per cent of millennials
are already public meeting points, so preferring to spend money on an
there is an opportunity to build on this experience than on goods, this is likely
association to drive footfall by using to be a future growth area.
them to celebrate cultural and other These experiential elements
public events. This can be a relatively can be relatively cost-effective to
low-cost way to revitalise a location. build and run, especially when they
Sometimes similar spaces in town involve sponsorship. If repurposing
centres can be used for cultural existing retail assets is an option,
production, such as rehearsal, an experiential element can be
recording or production studios. Such incorporated by running events to raise
facilities are often priced out of urban awareness or brand engagement.
areas but remain crucial to a place’s Selfridges, for example, by asking
cultural infrastructure. Other examples itself not what it can sell but what is
include large, technology-driven likely to draw people in, has seen its
flexible venues such as the new St Giles profits increase by 18 per cent since
Circus in London’s West End, which 2016. The store has partnered with
can be used for digital interactive music artists like A$AP Rocky to
events, small concerts, theatre, or to create a pop-up store, created themed
showcase events. Where these spaces content such as the Denim Studio,
use new technology such as 5G or data and held music events in partnership
capture techniques, there may be a with the Music Matters initiative.
cost impact such as the integration By reimagining itself as a curator,
of fibre optics and smaller nodes into Selfridges has created experiences
the architecture of the buildings and that people are more likely to share
public spaces. on social media, enhancing the brand.
Former department stores in town Where brands shoulder the cost of
centres are often large sites that can these pop-ups, costs can be kept low.
lend themselves well to conversion
for leisure use, such as gyms, crazy
golf, trampolining or climbing and
adventure centres.

Hounslow High Street Quarter, London

5
COST MODEL RETAIL EVOLUTION – 01/19

THE EVOLVING RETAIL MARKET REQUIRES INNOVATIVE

AND FLEXIBLE SOLUTIONS FOR THE NEXT GENERATION.
—

EVOLVING REAL-ESTATE
REQUIREMENTS
A growing number of developers are Other local authorities will no doubt be This can be for offices, such as WeWork,
assessing how they can repurpose interested in how these progress. but also maker spaces, such as those
struggling retail malls or town centres, provided by Fab Labs.
and the solution proving most appealing Bespoke and boutique
to them is change of use. There are plenty of other bright ideas Flexible pop-up retail
This often involves converting a around to diversify and reinvigorate The Boxpark pop-up malls built from
certain proportion of the space into retail spaces too. Small boutique refitted shipping containers, such as those
flexible retail space. One option is to cinemas or event spaces can be a in Shoreditch and Croydon in London,
remove some of the retail from the particularly attractive draw to an area. BOXPARK, A POP- are a key example of this approach.
existing space, insert a retail podium, Developers can also use underutilised UP MALLS BUILT Relatively cost-effective to build, these
and build apartments on top. Another is space between units to maximise FROM SHIPPING food and retail parks operate smaller
to rebuild retail on two levels and place revenue with roof gardens, which can CONTAINERS, IS A units with lower initial costs and bring
residential space above it. For any mixed- act as spaces to socialise, eat and drink. KEY EXAMPLE OF A together retail brands closer together in
use development, however, the planning Others use community spaces for FLEXIBLE POP-UP 24/7 active sites.
process is likely to be a relatively lengthy wellbeing initiatives, which can help to RETAIL APPROACH. The units that make up the parks
process, with associated increases in staff increase footfall. In some locations, food ­— suit changing consumer habits: the pods
and professional team costs. halls or curated kitchens are an option. typically act as showrooms to support
Market Hall in London’s Fulham, for a brand’s existing online profile, or
Supermix example, has become a curated space become workshops allowing start-ups
A change of use can entail mixing with various kitchens reflecting local to physically display their products cost-
residential, non-residential and and international cuisine. effectively to enhance potential online
workspace in the same development. There are challenges with this buying, or else they can enable smaller
But while “mixed use” is often seen approach for developers. Introducing business to try out high-street retailing,
as combining residential with a cinemas, eateries, event spaces, or giving them confidence to be larger
token amount of retail, the notion of rooftop restaurants and bars requires business tenants in future.
“supermix” goes beyond this. The term larger spaces, with all the structural As temporary structures the Boxpark
— coined by Melissa Meyer, urban considerations such resizing entails. idea can also be adopted for underutilised
researcher at We Made That — means It also means shifting from collecting or temporary sites in large residential
using more than just a token amount larger rents from fewer businesses to development schemes — occupying
of retail in the mix. more rents from smaller businesses, sites designated for future development
The idea is gaining in popularity. but this can improve revenues. with retail activity to bring and maintain
For example, the proposed Spray vibrancy to the development before
Street Quarter in south London’s Coworking spaces it completes.
Greenwich, will combine homes and a Some developers are finding new sources
new public square with a cinema, shops of revenue by converting retail space into
and restaurants, flexible workspace temporary rented space or co-working
and a nursery. According to Meyer, spaces for flexible workers, freelancers,
the Greater London Authority, local small businesses, and startups.
authorities in London and even some The rise in freelancing and
industrial landowners have started to independent work and the growing
champion such uses in new schemes market for dedicated co-working space
to contribute to efforts to retain point to this as a source of future
cultural vibrancy. potential demand.

6
LAST MILE
LOGISTICS
For out-of-town retail parks, urban Across Europe, public authorities However, some redundant retail
warehouses for consolidating
and sorting freight are an
£1bn have started to work with
businesses to site logistics facilities
spaces are perfect locations
for these facilities, and freight
Every £1 billion
option. These are often known increase in online
closer to the urban areas they are consolidation centres could reduce
as “last-mile logistics” or sales increases serving. This cuts congestion and the number of vehicles coming
“consolidated delivery”. the need for pollution, and can also reduce the into towns and city centres by
Every £1 billion increase warehousing inefficient duplication of journeys up to 70 per cent.
space by
in online sales increases the one million by rival delivery companies.
need for warehousing space by square feet. Last-mile warehousing entails
1 million square feet. As consumers costs such as security facilities
increasingly expect products to and good wifi to enable tracking
be delivered to their door, ever and sensors.
more vehicles need to enter
dense urban areas.

7
COST MODEL RETAIL EVOLUTION – 01/19

RIGHT-SIZING The most common option is likely

to entail building residential units
above retail, which could introduce
There is also the question of how
these different elements interact with
one another. For example, replacing a
RESIDENTIAL cost drivers such as transfer decks,
centralised plant, and the positioning
space comprising 1 million square feet
of retail space with one containing just
of cores and service routes. 500,000 square feet of retail could
Leasing and construction challenges PUTTING THE turn out to bring more revenue into
The challenge of repositioning retail can be extensive, especially where the town if the subsequent mixed-
to match changing demands over the RIGHT AMOUNT OF
there is a need to continue trading. RESIDENTIAL INTO use development brings extra footfall
next two to three decades is going to be However, the key to overcoming into the town centre.
constantly changing. Leaving current THE SPACE IN THE
these is by utilising contractors’ and SHORTEST POSSIBLE The sweet spot is known as “right-
assets in their existing formation brings consultants’ previous experience. sizing” — putting the right amount
the risk of struggling to rent out spaces TIME, TO GET
Where existing retail centres need to RETAILERS MOVING of residential into the space in the
that are potentially an inappropriate be modified, the costs associated with shortest possible time, to get retailers
size or shape for the retailers of the BACK INTO THE
maintaining the trading environments SPACE IS KNOWN AS moving back into the space as soon
future. Reconfiguring them raises the could be significant, including as possible.
question of what configuration will best THE SWEET SPOT.
temporary plant and equipment, ­—
meet future demand. If reconfiguration security arrangements, out-of-hours Build to rent
is to include residential space, then working for construction staff, changing Build-to-rent (BTR) developments —
there is the question of what ratio fire strategies, interface management, purpose-built, institutionally owned
of residential to retail space will be and dealing with waste, screening and and professionally managed schemes
desirable in the future, and then what phasing of works. — are likely to be a key piece of
the most convenient, desirable, and the puzzle.
cost-effective configuration might be.

Spray Street,
Woolwich, London

8
 The BTR sector has grown strongly BTR requires a different costing The growth in the adoption of
in the past five years. As of last spring, approach from for-sale residential modular construction is part of the
about 20,000 units had been built developments, and must be built in a solution, particularly for mixed-use
in the UK and 80,000 more were way that is long-term and sustainable, developments. Modular construction
both financially and environmentally. is typically lighter in total weight,
£50bn
either awaiting planning approval or
under construction. With support In a retail context, BTR adds enabling the use of lighter decks,
from national and local government, a number of nuances to existing and can be delivered in shorter
With support
investment in the sector is expected to from national and
calculations. Although in many ways programmes, helping to reduce overall
reach £50 billion by 2020. Despite this, local government, similar to a shopping centre, the costs. For example, the developer
investment in the developer curates the whole space and might resize part of the building, with
some investors remain hesitant, as sector is expected
the model is relatively new to the UK takes rent from retailers and tenants, some of the area being redeveloped for
to reach £50 billion
and this unfamiliarity is making both by 2020. as well as managing the space. retail, but making use of a podium with
investors and policy-makers pause. Challenges remain around the modular construction. This speeds up
Although it is likely that BTR potential change in demand and the development, enabling retailers
will form a significant element of use. These include ensuring that any to take up their positions earlier,
any redevelopment, the model still development has the opportunity which reduces the time it takes from
comes with challenges which require to adapt to future needs as well as starting construction to the first
expertise and experience. It needs to creating schemes with limited impact; rental payments.
be handled in a slightly different way as well as the issue of how to bring in
from other models. rental revenue as soon as possible.

CONCLUSION
In the next decade, as the way we buy It is clear that across the UK
products continually changes, retail innovative ideas for how to use retail
environments will change alongside space are mushrooming. Supermix,
this. However, the focus is still the build to rent, boxparks, community
same — creating places — whether it and cultural uses and warehouses for
be a high street or out of town where last-mile logistics are likely to be only
people want to go and developers, the start of the revitalisation of areas
councils, retailers, and tenants all have formerly dominated by traditional retail
a shared interest in making it work. in the years to come.
The challenge is selecting and
creating the right mix to achieve this
and then matching this to planning
policies, sustainability targets and
environmental regulations: careful
navigation is needed.

9
COST MODEL RETAIL EVOLUTION – 01/19

THE COST MODEL

The cost model is based on a town centre redevelopment Costs exclude demolition and site clearance, external works,
as part of a wider regeneration plan consisting of retail and external services, car parking, highways works and fit-out of the
other uses in three blocks with a gross floor internal area of retail units. The cost model assumes a competitive tendering
around 33,000 square metres. Block one consists of a market/ procurement strategy. Client contingency, professional fees,
food retail and event space of 4,000 square metres; blocks two taxes site specific abnormal have been excluded. The costs are
and three consist of ground- and first-floor retail, a podium relative to the South-east of England based on Q4 2018.
deck and 100 residential build-to-rent units using modular
methods of construction.

COST BREAKDOWN FOR A

TOWN CENTRE REDEVELOPMENT
Market/F&B/event space in building block 1 Retail (2 levels) in building blocks 2 and 3
Element Cost/m² % total Element Cost/m² % total
cost (£) GIFA cost cost (£) GIFA cost

GIFA = 40,000M2 7,354,887 1,838.72 11.0 GIFA = 20,000M2 25,211,088 1,260.55 38.0
Substructure Substructure
Piles foundations, insitu concrete slabs 760,785 Piles foundations, insitu concrete slabs 3,604,639

Superstructure Superstructure
Frame: Streel frame structure; 8m x 8m Frame: Streel frame structure; 8m x 8m
grid; concrete core walls 743,268 grid; concrete core walls 4,131,971
Upper floors: Holorib deck and concrete Upper floors: Holorib deck and concrete
slab including insulation 101,935 slab including insulation 1,189,603
Roof: Holorib deck and concrete slab Roof: Holorib deck and concrete slab
including insulation; waterproofing 433,621 including insulation; waterproofing 2,597,651
Stairs: Precast concrete stairs Stairs: Precast concrete stairs
including balustrading 63,757 including balustrading 81,267
External walls: External brickwork; open External walls: External brickwork; cladding
ventilation grills; glazing and cladding; above shopfronts and to pilasters ; shopfront
shopfront glazing to F&B units 546,114 glazing to F&B units; temporary shopfronts
Windows and external doors: Double to retail 4,771,342
glazing to BOH areas; glazed double doors Windows and external doors: Part
to F&B units 166,146 glazing to upper floor; double glazing to BOH
Internal walls and partitions: Stud areas; glazed double doors to F&B units 2,484,239
partitioning to BOH area 247,528 Internal walls and partitions: Stud
Internal doors: Internal single an partitioning to BOH area 1,264,874
double doors to BOH areas 62,124 Internal doors: Internal single an double
doors to BOH areas 131,472
Internal finishes
Wall finishes: Brickwork; GRC cladding Internal finishes
to columns; painted finish 420,421 Wall finishes: Paint or sealer to
Floor finishes: Polished concrete flooring BOH corridors 44,787
generally; Concrete slab to allow screed to Floor finishes: Sealer to BOH corridors 20,949
F&B units 371,299 Ceiling finishes: Sealer to BOH corridors 24,561
Ceiling finishes: Exposed ceilings; GRC
feature panels 403,084 Fittings, furnishings and equipment
General signage, metalwork 180,593
Fittings, furnishings and equipment
General signage, metalwork 72,237 Services 4,683,141

Services 2,962,568

10
Modular residential units in building
blocks 2 and 3
TOTAL CONSTRUCTION COST
Element Cost/m² % total Total (£) £/m2 %
cost (£) GIFA cost
66,210,469 2,006 100
GIFA = 9,000M 2
20,402,400 2,266.93 31.0 Total
construction
Total
construction
Total
construction
cost cost cost
Substructure
Not applicable -

Superstructure
Steel girders to create void above retail 825,000
Holorib concrete deck including insulation 150,000
Concrete cores to receive modules;
lifts; stairs 885,600
Modular units 15,012,000
Landlards/circulation 2,152,800
Façade enhancements 567,000
Balconies 616,500

Fittings, furnishings and equipment 193,500

Preliminaries, OHP and contingency

Element Cost/m² % total
cost (£) GIFA cost

PRELIMINARIES, OHP AND CONTINGENCY 13,242,094 401 20.0

Contractors preliminaries, overheads
and profit, design development @25%

ACKNOWLEDGMENTS
The authors would like to acknowledge the
contribution of AECOM colleagues to the
development of this article and cost model, including
Sean Cook, Richard Green, John Lewis and Rob Mills
for their help in writing this article.

11
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