A couple of months ago, during one of our weekly meetings, we came across an interesting dilemma. Should we downgrade or upgrade properties that are above shops? Put in simple terms, should our analysts be biased towards market opinion by assigning brownie points only to attributes that will have a positive impact on the future property price of the unit in question and the welfare of the buyer?
When we interviewed home buyers and investors in 2009 (80 out of the 92 respondents) told us that they would prefer not to have retail below their property. This is not very surprising when one thinks that:
1. The majority of investors or home buyers would not want an empty shop below their investment.
2. Some mortgage lenders would not consider properties above retail units.
3. The uncertainty of future use is a major liability. What if a change of use attracts retail businesses that may negatively impact the local character of the area, or be a nuisance?
Our meeting became a bit more heated when we brought in the ideas of the great American urbanist, Jane Jacobs to the table. (We actually have a photo of Jane stuck above our ranking desk, so we are big fans).
In her The Life and Death of Great American Cities Jacobs argued that cities and neighbourhoods are vibrant when there is a good mix of use. Retail, residential and commercial space should be mixed together rather than being zoned apart. A number of positive outcomes emerge from this mix of use. Streets are busier for longer periods of the day, there is informal policing of the street with shopkeepers keeping an eye on the sidewalk and more importantly residential areas are served by local shops. One does not need to walk 10 minutes for a loaf of bread.
Jane Jacobs would argue that rather than just benefiting the occupiers of the property in question, allowing retail use at ground level could help uplift the area as a whole.
Somewhere between Jane Jacobs and the worried buyer who dreads to see the opening of the next late night kebab shop below their living room, is the Howard de Walden Estate’s model of regeneration. Here, a good mix of retail and residential can help increase the quality of life of the neighbourhood as well as positively impact the property prices in the area, which will benefit landlord, leaseholder and the freeholder alike.
The Marylebone High Street example of carefully controlling the types of retailers on a street can be succesful. Indeed the Howard de Walden Estate has benefited from an increased value of residential leases in the area, which cross-subsidise the unique ‘village like’ retail outlets (whose ‘place making’ capacity drove residential prices up in the first place).
The central component in a succesful residential-to-retail mix is the presence of a long-term stakeholder who vets the types of units that would be allowed in the area in both the short and long-term future. This creates confidence both to those who use the street on a daily basis and to future buyers who would trust the retail selection process.
We are currently mapping a series of streets in London, where there is a clear synergy between retail and residential use controlled by such stakeholders. As soon as we have the results, we will reconsider our uniform downgrading of properties above shops.
Anyone interested to attend our next ‘methodology review’ meeting, please email us on support at rankdesk dot com
We would particularly like to hear from Mortgage brokers.