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QD view – What next for Debenhams, Arcadia landlords?

The retail Armageddon took another sobering twist this week, with the liquidation of department store Debenhams and former high street fashion kingpin Arcadia Group going into administration.

The headline numbers are shocking, the main one being that around 25,000 jobs are at risk.

From a property point of view, the double collapse could see up to 16.6m sq ft of empty retail space on the UK’s high street, according to figures from Radius Data Exchange. That’s 568 stores between them – 444 leased Arcadia shops and 124 Debenhams stores.

The companies most exposed are British Land, Hammerson, Capital & Regional and Land Securities. While the news wouldn’t have come as much of a surprise, it does leave them picking up the pieces of yet more retail tenant failures and the conundrum of what to do with the space. So what are their options?

In the current climate, with the retail and leisure market on its knees, finding a like-for-like replacement will be very difficult.

Both British Land and Hammerson have reduced their exposure to the two retailers in recent times, with British Land replacing Debenhams with Facebook at its Regent’s Place office campus last year and Hammerson already under offer to swap out Arcadia brands with new potential tenants at its Cabot Circus shopping centre.

It still leaves both companies with significant exposure. British Land owns around 23 Arcadia-let units, measuring roughly 310,000 sq ft, and seven Debenhams stores spanning around 289,000 sq ft. Hammerson owns 14 Arcadia stores, including those held in joint ventures, and two huge Debenhams stores.

Capital & Regional has two Arcadia leases (about 16,000 sq ft) and three Debenhams stores (around 340,000 sq ft), while Land Securities has around nine Arcadia shops in its portfolio measuring roughly 102,000 sq ft, as well as two Debenhams stores tallying nearly 144,000 sq ft.

The immediate priority for the landlords, I would think, would be the department stores, which are huge spaces and normally located in prime spots on the high street or in the shopping centre.

Since Debenhams went into administration in 2019, other landlords have brought forward plans to convert the space into offices, residential, leisure and hotel schemes, or a combination.

Given the prime central location of most of the stores, they would make great spaces for mixed-use schemes incorporating plush flats, co-working space and some leisure and convenience retail space. That, I think though, is pie in the sky at the moment given the significant sums of money needed to repurpose the stores.

I’m not sure any of the companies have the appetite for redevelopment risk, but what may be more likely is that they cut their losses and sell these department stores off as development opportunities or bring a developer partner on board.

The options available on the smaller Arcadia-let shops are more obvious but no less challenging. Re-letting the space will be very difficult given the limited number of retailers looking to expand.

The gaping hole left on the high street by the fall of these two once mighty retailers will be palpable. The journey to filling that hole is sure to be long and bumpy.

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