Blog: Revolution in Planning: Impact on Leisure & Hospitality
July 27, 2020
Last week’s announcement from the Government is without doubt the most radical reform to the planning system in England since at least 1972. The changes simply must be welcomed – the old system was so broken it is difficult to imagine that they could make things worse.
In a nutshell, the Government is looking to deregulate virtually all commercial uses within retail locations in town centres. The old established ‘A’ planning classes of A1 retail, A2 professional services and A3 food and drink are to be swept away, and combined into the new ‘E’ class, which will also include office use, as well as health and fitness, children’s nurseries and medical uses where they are predominantly visited by the public. These sectors will therefore benefit from flexibility to occupy town centre properties like never before – gone will be the old preserve of retail areas where it was nigh on impossible to get a restaurant consent. Significantly, the guidance is that these uses will be able to take place from the same premises in different day parts. No longer will occupiers need to define their use precisely – they can morph from shop to restaurant or gym during the course of the day.
The potential for chameleon businesses to emerge incorporating conventional retail as well as restaurant, hospitality and other service industries from the same premises at different times of the day is revolutionary and presents an opportunity to far-sighted entrepreneurs to develop new brands and operating styles unfettered by conventional regulation and expectations.
The effects on the town centre property market are profound and far-reaching. We are entering a brave new world of opportunity for landowners and hospitality operators to capitalise on these newfound freedoms.
One of the biggest winners will be town centre department stores. We have seen casualties in this sector over recent pre-covid years. Large scale retail units in town centres can now be transformed into multi-use facilities which could include health and fitness clubs, food halls, children’s nurseries, paramedical and medical practices, as well as coffee shops restaurants and competitive socialising businesses. The opportunity for the owners of this asset class abound in prime town centre locations and have the scale to re-emerge as destinations in their own right. They will certainly drive footfall to the town centre once again which is the main aim of the changes.
Some owners of department stores are already looking at co-working spaces within former department stores and this will make it much easier. It is a shame that the changes are restricted only to commercial uses and do not venture into the area of living/workspace as well.
Disappointingly, the changes do not address the emergence of home delivery from conventional town centre restaurants and bars, as a consumer trend. When does a conventional restaurant become a hot food takeaway unit? The scale of delivery and take-out trade from some conventional restaurants and bars is such that this issue surely needs to be addressed given that hot food takeaway is to be excluded from the new all-encompassing and flexible ‘E’ class.
There are other uses which will experience reduced flexibility in planning terms as well as A5 hot food takeaway. Pubs (previously A4), along with cinemas bingo halls and live music venues (D2), and isolated ‘village’ corner stores are now lifted out of the use classes system altogether and become Sui Generis, meaning that any future change of use will require the grant of a planning permission. Was that the Government’s intention? It seems particularly harsh on the big box leisure market which has plenty of challenges post-pandemic.
The pattern of land uses in our city centres will change beyond recognition over the next decade. What has, to date, been the protected retail town city centre core, where it has been hugely problematic to introduce restaurant and bar uses, will now be opened up and restaurant operators will be able to locate in the prime retail district alongside the likes of Boots and WH Smiths in a way that was inconceivable previously. It should lead to a more balanced, interesting and vibrant high street.
What will the impact be on the existing stock of restaurants which, until now are largely clustered on the periphery of these areas? These areas will feel the full force of competition but will benefit from increased flexibility for conversion to other uses, which will no doubt include office, medical, office and children’s nurseries.
How will peripheral town centre properties with A4 planning permission go forward? Their locations will be on the edge of revitalised town centres and their new Sui Generis use will make change of use difficult and un-appealing. This is another big loser from these changes.
From a legal perspective, any leases being drawn up now will need to fully reflect the changing statutory framework that is about to hit us. No doubt some landlords will want to continue to impose additional controls on property to protect tenant mix and will be looking to introduce more specifically defined user restrictions in lease clauses than has been necessary to date. Whilst new leases being written now will be able to take all of this into account; what of existing leases that are already in place? There will no doubt plenty of action for the lawyers resolving disputes on the interpretation of user clauses in existing leases. These issues will rear their heads when occupiers wish to assign and in particular, at rent review. Expert advice will be more valuable than ever to exploitopportunities and avoid pitfalls.
The impact on property yields and rents will be profound. Just when COVID-19 seemed to be shifting land and asset values away from city centres, this change will give a boost to yields on properties in the heart of cities where footfall will again be re-vitalised. The pattern of rental values is bound to shift as well.
Local authorities however have more than just the planning weapon to influence our sector. I am sure licensing policies will be revised by council’s seeking to retain as mush control as they can on their town centres. Will they readily grant new Premises Licences in established prime retail locations? It seems likely to me that licensing conditions will be widely used to restrict and control trading styles, hours of operation and capacity limits.
Surely these proposals must spell the end of business rates? The rates revaluation has been deferred again to 2023. We will now be faced with a situation where properties falling within the ‘E’ category with flexible use will need to be assessed for rates purposes with a notional valuation date of April 2015 when such uses and styles of trade did not exist! I can see a huge difficulty in arriving at these notional rental values.Hopefully, this is an early indication that the Government intends to replace rates with a fairer alternative tax that rebalances the playing field between online and conventional sales?
Overall, this initiative should be welcomed. Revitalising town and city centre high streets is crucial, and deregulating in this way will facilitate investment and change. The aim is to bring people back to the town centre at all times of the day and evening. There will be a benefit to landowners with city centre assets, whilst those on the periphery will need to adjust to the new statutory framework.
These changes are long overdue; we can only hope that theimplementation and detail stand up to scrutiny given its hasty introduction against a global pandemic and economic crisis. Opportunities for the innovators in the property and hospitality world will abound like never before.