Taking up the gauntlet

This year, our Pragmatists will take a thematic approach each month, and we start by looking at repurposing and what to do with underperforming assets. First, let's look at the challenges and opportunities which lie ahead.

The new year brings an opportunity for optimistic investors and asset managers to indulge in a little workplace fantasy: ‘perhaps this is the year Christmas sales will make up for a disappointing year’ or ‘consumers will reject online and embrace physical again’, or ‘this is the year my asset’s location really does pay off’.

Unfortunately for most, the same challenges and trials that were present at the end of December remain: online continues to take a significant and growing share of retail sales in mature markets (22% in US Q3 2024; 30% in the UK during November 2024; 34% in China 2024) whilst flexible working (35% of US workers did some remote working in 2023, while 47% of US workers and 58% of UK workers prefer to work in a hybrid model) has fundamentally changed people's behaviours. Demand for office and retail space has subsequently altered, with little indication this is likely to change.

What the New Year does bring is the impetus to make decisions on an asset’s future. Assets – be they retail or office – with strong core fundamentals (accessibility, relevance to an audience, appropriate size and design for their market) remain as in-demand as ever. Landsec’s £490m purchase of Liverpool One (seen above) comes after a widely publicised search for "catchment-dominant assets in a strong catchment" but finding "there is a relatively small number", which shows the value of active asset management and investment by previous owner Grosvenor. The luxury watch retailer The Hour Glass’ purchase of the Tong Building’s ninth and tenth floors on Singapore’s Orchard Road for a record $53.4 million highlights the opportunity that restricted supply plus strong location and adjacencies can deliver. Even in the US, where the term ‘zombie mall’ has captured the imagination, savvy operators of prime retail are investing and acquisitive; HP Village Partners – owners and operators of Highland Park Village in Dallas and home to the likes of Christian Dior, Tom Ford, and Alexander McQueen, have bought and will be investing $100m in Country Club Plaza, Kansas City, Missouri.

Whilst prime remains a key attraction, equally the industry has yet to find a solution for its many sub-prime assets. Mooted downsizing, diversification and or redevelopment – often to include residential - typically fail upon two key criteria – can it be done profitably and can the profit generated exceed that of other opportunities, typically new build? Across great swathes of mature markets in the UK and the US, the answer is typically no and there appears little on the short-term horizon to change this.

Where opportunity does abound is in those assets that have some of the core fundamentals but have been underinvested in for too long and/or owners have been unable/unwilling to tackle fundamental challenges, or where drops to asset values present an opportunity to better align provision with opportunity.

Grosvenor’s asset management of Liverpool One – not a top 10 catchment by resident population or profile – shows the opportunity still in UK retail. Recent and rumoured purchases of retail in Exeter, Maidstone and Newbury show the potential for assets to be re-energised following falls in value, particularly if they provide access to a sizeable audience. In offices, work by Pragma’s sister company Benoy at Cross St Singapore highlights the opportunity for success if fundamentals – in this case location – are in place but investment and design interventions are required. Benoy’s design concept, named The Heart, has secured new tenants and rental uplifts via the provision of new facades, integrating car parking, retail spaces, green terraces, and bike facilities.

Understanding each asset and where it sits in terms of potential is key, allowing investors and asset managers to understand the scale and nature of opportunity, and whether they have the appetite, funds and skillset to deliver. With consumers, occupiers and investors showing demonstrable interest in assets that can present a compelling rationale, 2025 looks set to be a year of acting on opportunities.

Andrew McVicker