Mind the Gap

Mind The

Gap, the San Francisco-based retailer, announced in July 2021 that it would be closing all 81 of its stores in the UK and Ireland to become online-only. The group’s first outlets opened in the UK in 1987 and closed its doors for the final time at the end of September 2021. The trend towards e-commerce accelerated with the global pandemic, with the retailer joining a string of well-known brands in offloading or reducing their real estate portfolios.

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GAP

The portfolio of vacant gap stores occupies prime positions in many of the UK’s major town centres and out of town retails parks. Carter Jonas has researched the current status of all 81 outlets in order to assess how successfully the units have been re-let, and the type of occupiers who have taken the space. We believe this provides a useful insight into retail trends more broadly.

Reletting Success

According to Carter Jonas research, only 22% of Gap’s units have been re-let, with a couple more understood to be under offer. Considering the average time a retail unit currently spends on the market is almost 12 months, this figure seems low. It is possible that Gap may not have agreed lease surrenders with the landlords, as they have with others. Nonetheless, our findings point towards an evolving retail market, with some locations and tenant sectors looking more buoyant than others.

By Region

Figure 1: Total Closed and Re-Let Gap Stores by Floor Area

Source: Carter Jonas

Eastern England

Wales

Northern Ireland

East Midlands

North West England

Scotland

North East England

West Midlands

South West England

South East England

London

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

Re-Let Units in Sq Ft (approx.)

Sum of Units in Sq Ft (approx.)

Making up the largest share of the portfolio, units in London accounted for 31% of its floorspace. Our research shows that 79% of the square footage previously occupied by Gap in London is still vacant, accounting for 21% of the overall figure. This echoes the wider retail picture in London, which has seen vacancy rates at a nine-year high in 2021 after weathering a particularly challenging pandemic. According to data from Centre for Cities, London, followed by Birmingham and Edinburgh, was the worst hit city and has been the slowest to recover.

London has not been alone in recording high vacancy rates for Gap stores. None of the Gap units in the East Midlands, North East England, Northern Ireland and Wales are understood to have been relet, albeit from low initial numbers. Furthermore, 92% of Gap’s floorspace is still vacant in the West Midlands, representing 10% of the national vacant square footage.

In contrast, three out of six of units in the North West have been re-let, two of which are in town centre locations. While a nosedive in footfall resulting from successive lockdowns, home working and a lack of tourists forced closures across all regions, activity is returning and is likely to create increasing demand for retail services in city centres.

Retail Locations

Figure 2: Vacant Gap Stores by Retail Location

Source: Carter Jonas

Vacant

Reoccupied

Out-of-town retail park

Out-of-town shopping centre

Town Centre

Interestingly, 83% of the units that have been re-let are in town centre locations, whether that be in a shopping centre located within a main retail area or on the high street. These locations only make up 59% of the portfolio, with further presence in out-of-town retail parks and shopping centres.

Bolstered by a surge in leasing by discount retailers and benefitting from resilient footfall, the focus of retail demand during the first year of the pandemic was on out-of-town retail parks. The remaining 17% of the re-let units were located at such locations. Discount retailer Oops! Clearance Limited has taken a former 6,000 sq ft Gap store in West Bromwich, suggesting the sub-sector is still active. However, changing consumer shopping habits and a return to city centres has redirected attention.

Although the high street has faced a challenging two years, an anticipated increase in footfall with the easing of pandemic restrictions has boosted sales and increased demand for retail space in town centres. Demand is being supported by re-based rents as landlords look to avoid longer-term voids. Gap’s town centre locations were typically prime spots and have proved popular with growing optimism, particularly in more affluent areas, such as Planet Organic’s leasing of a unit in Hamstead.

In stark contrast, out-of-town shopping centres have seen little resurgence; all previous Gap at these locations remain vacant.

Incoming Tenants

Figure 3: Industries of Incoming Tenants of Reoccupied Gap Stores

Source: Carter Jonas

Beauty

Clothing

Food & beverage

Furniture store

Entertainment retailer

11%

39%

Retail take-up reached a four-year high in Q4 2021, supported by the food and beverage industry and the return of fashion retailers. With the bulk of the Gap stores closing in Q3 2021, the units have benefitted from a later wave of more diverse tenants.

Driven by the return to office and the easing of restrictions, momentum has picked up in leasing by food and beverage retailers. Representing 39% of the re-let Gap stores, food and beverage retailers are considered a key element of the high street tenant mix. The industry saw a drastic shift during the pandemic, with the forced closure of drinking and eating places and subsequent pressures on grocery stores. This is now levelling out and, despite a brief disruption owing to the Omicron variant, is subject to a rebound in consumer spending. Significant transactions at Gap units include Wendy’s signing for the previous Gap unit in Brighton, and Coppa Club’s expansion in Bath. Further, the ONS has reported a bounce-back in clothes stores sales volumes, which were above pre-coronavirus levels for the first time in November 2021. This is reflected in the proportion of fashion retailer leases of vacant Gap stores (39%), which suggests continued confidence in bricks-and-mortar retail from some occupiers in this sector for the right locations.

Where Gap has moved away from a physical presence, others have seen this as an opportunity. This mindset has been adopted by HMV, who have taken two Gap units in prime positions, one in Bath and another in Edinburgh. Almost all the re-let units have been taken by chain stores, suggesting that there is still confidence in the life of national chains.

Thoughts for the near-term

The sample of closed and re-let Gap stores suggests there is appetite for well-located stores in both high street and out-of-town locations from selected fashion retailers as well as food and beverage outlets. Despite concerns over inflation, reduced consumer spending power and a short-term fall in confidence, we believe occupier demand will continue to recover alongside the lifting of restrictions, with town centre retail locations revitalising with a changing tenant mix.

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Daniel Francis Head of Research +44 (0)7920 540588

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Tim Brooksbank Associate Partner 01225 747266

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Sophie Davidson

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