This paper highlights the value in measuring retail and commercial floorspace provision in main streets, thereby identifying vacancy rates for shops and offices, retail sales and trends over time.
During the coronavirus pandemic, media reports show increasing vacancy rates in retail and commercial/office premises in our main streets. These vacancy rates are used as a tool to measure the challenges faced by businesses operating in our traditional main streets or strip centres (and also as measures in larger shopping and commercial centres).
While vacant tenancies also exist in shopping malls or stand-alone shopping centres during the pandemic (and during economic downturns, generally), these centres typically have a centre manager who is well-placed to manage vacancies by seeking-out new tenants for a vacant property that comes up for rental.
In contrast with the shopping malls, main streets typically comprise many individual property owners as owner-occupiers or as local property investors. As such, these main street centres do not have a dedicated property manager who is otherwise well-placed, through good property management, to specifically ensure that shop and office vacancies are kept to an absolute minimum in the main street.
Nevertheless, useful techniques exist which assist main street businesses and their business or trader associations in measuring floorspace provision and in identifying underlying trends in main street business performance.
In the pre-COVID context, vacancy rates for retail and office businesses in a main street shopping strip have typically been in the range 4% to 6% of total floorspace in the main street.
However, although some local main street centres are surviving reasonably well despite the COVID-19 pandemic (as residents tend to support local businesses located near to home), other main streets are experiencing high vacancy rates compared with pre-pandemic times. Thus, with wide-spread community lockdown during the pandemic, vacancy rates in some main streets have increased significantly to around 10% or more of total floorspace, and even approaching 15% to 20% and above in particular main streets.
In some cases, relatively high vacancy rates in these streets are observed where the strips are experiencing severe competition from shopping malls or standalone centres in which a wide range and depth of goods and services is available to residents in the surrounding catchment. In other cases, main streets have been experiencing severe competition from online shopping, particularly during the pandemic, with online shopping accounting for around 15% of household retail spending and increasing over time.
In yet other cases, rents have been kept high in main streets as property owners are reluctant to reduce rents (and thus avoid a decline in property value), even where their tenants are experiencing severe adverse impacts associated with the pandemic and with competition from the malls and online shopping.
Measuring Floorspace Use and Vacancy Rates
In this context of currently high vacancy rates relative to pre-COVID times, attention is drawn to the basis upon which these vacancy rates are calculated.
In many cases reported in the media, the vacancy rates are based simply on the number of vacant premises in the main street expressed as a percentage of the total number of business premises in the main street.
However, a more appropriate approach is to adopt the widely-applied measure where vacant floorspace is expressed as a share of total business floorspace in the main street.
The value in measuring the area of vacant floorspace in premises – rather than the number of vacant premises – is that the areal approach to measurement provides a more comprehensive indication of vacancies. If we only measure vacancies by number of vacant premises, we may be overlooking a vacant major business premises in floorspace terms, such as a supermarket or a furniture & floorcoverings retailer or the like. Thus, the actual business vacancy rate in a main street could be severely under-stated. However, where the actual area of vacant floorspace is measured as a share of total floorspace, a more accurate assessment of vacancy rates for a main street is achieved, thus providing an important measure of the health of the main street and its retail and commercial activities.
The tried-and-true approach to measuring vacant floorspace in a centre is to undertake a floorspace survey, noting each individual retail and commercial use in the main street, with floorspace estimated in square metres, simply by estimating the width and depth of each property and expressing total floorspace in terms of Net Lettable Area (or NLA).
To facilitate the approach, retail uses and associated floorspace are typically recorded under sub-headings such as Food (supermarket, other); Clothing & Footwear; Household Goods (Furniture, Bedding, etc); Hospitality (cafes, restaurants); and Other (Not Elsewhere Classified or NEC). And commercial office uses can be classified, for example, as Legal; Health; Other (NEC). Apps such as Fulcrum can facilitate this ‘floorspace measurement’ exercise, with the data readily downloaded into an Excel spreadsheet for analysis.
In summary, the value of undertaking a regular floorspace survey in our main streets is that:
- the data can be readily updated (say, on an annual basis) so that comparisons over time can be made in regard to total retail and commercial floorspace provision;
- the proportion of floorspace that is vacant can be readily identified, thereby providing a measure of the economic health (or otherwise) of the main street;
- any changes over time in the retail or commercial composition of the stock of floorspace can be highlighted, such as growth in hospitality activities (cafes and restaurants) and in click-and-collect outlets; and
- the retail floorspace results (measured in square metres) can be converted to retail sales ($) by applying estimates of retail sales per square metre (e.g., $5,000/m2 for a gift shop) and also converted to employment estimates (e.g., 25m2/job in a gift shop). The estimates of retail sales per square metre will vary according to type of retail business, as will the estimates of square metres per job.
Measuring Retail Sales
Resources required in undertaking a regular floorspace survey are considered to be minimal. The initial floorspace survey for a main street requires the identification of all retail and commercial premises by type and net lettable area. The resources involved in the survey will be influenced by the overall length of the main street; typically, this may require around a day or two in fieldwork, noting uses and floorspace. Back in the office, the data is then collated to provide a listing of retail and commercial uses (separately) and the floorspace involved (by type of use and floor area). This data base then enables the highlighting of those premises that are vacant (and measured as a proportion of all retail or commercial/office floorspace), and also indicating those areas where growth or decline has occurred compared with the previous survey results (such as growth in cafes and restaurants or in household goods, and so on).
Estimates of retail sales generated in a main street are made by applying average sales density ratios (i.e., sales per sq metre by retail type) to the retail floorspace data, thereby deriving an estimate of the main street’s total retail sales on an annual basis.
This estimate of total annual retail sales in a main street can then be used to provide an estimate of market share for the centre, having regard for the estimated total number of residents (or households) in the main street’s surrounding catchment or trade area.
Estimates of the number of retail and commercial jobs in the main street can also be calculated with reference to the floorspace data, with changes in job numbers noted over time.
In conclusion, an important tool in assessing the health of a main street is to maintain a measure of:
- Occupied floorspace measured by use (retail and office uses) and by sub-use (eg, “Cafes & Restaurants”); and
- Vacant floorspace measured by use (retail and office) and expressed as a share of total retail or office floorspace.
Importantly, assessments of main street vacancy rates are measured by area of vacant floorspace and this is are far more useful than vacancy rates measured by number of vacant premises.
A further consideration is that undertaking a floorspace survey is an important tool for assessing the performance of our main streets in terms of:
- Identifying the proportion of floorspace in particular types of uses in a main street, including convenience retail (e.g., food, pharmacy, newsagent) and specialty retail (e.g., clothing, household goods, gifts);
- identifying the extent and location of vacant floorspace in a main street;
- assessing the level of retail sales in a main street, including sales by retail type;
- estimating the number of retail and commercial jobs in the main street by applying appropriate estimates of average floorspace per job; and
- using floorspace data compiled over time (say, annually) to identify new and emerging trends, opportunities and trouble spots in our main streets in terms of sales and jobs.
In summary, it’s worthwhile to undertake regular floorspace surveys in our main streets, thus enabling main street business or trader associations and their members to measure trends in their centre’s performance over time.
John Henshall is an urban and regional economist and town planner. Much of John’s consulting work for the private and public sectors involves projects associated with town centres, shopping centres and the business sector.
Projects typically involve assessments of retail and commercial/office supply and demand; mixed-use developments; economic impacts associated with development proposals; strategic planning and development strategies for town centres, municipalities and regions; contributions to Retail Strategies and Placemaking Strategies; and representing public and private sector clients at Planning tribunals and panels.
John has worked as a consultant across Australia and in the UK, Asia, NZ and the USA.