Mind the Gap Dec 2022

Mind the Gap

January 2023 update

Over a year has passed since retailer Gap closed all 81 of their physical stores in the UK. These vacant stores, which are typically prime units in desirable locations, left a significant void in many town centres and retail parks.

Against a harsh economic backdrop and with consumer confidence at record lows, retailing businesses are confronting significant headwinds. Yet, while some retailers continue to scale back on their retail footprint, others have acted with optimism and opted to expand, enter new markets and return to markets they had previously left. Since our last update, Gap has re-entered the high-street as a concession within Next, indicating a rise in confidence in bricks-and-mortar. It was announced in August that Next was intending to grow Gap’s presence by opening a further five ‘shop-in-shops’. Carter Jonas has revisited the status of all units previously occupied by standalone Gap stores to establish where progress has been made in reletting over the last two quarters and the emerging tenant mix. We believe that this offers an interesting insight into the wider UK retail market.

Reletting continues

In April 2022, Carter Jonas research reported that only 22% of Gap’s units had been relet, representing over 122,000 sq ft of retail floor space. As of mid-January 2023, this figure now stands at a more robust 43%, or around 292,000 sq ft. In addition, there are a further seven units (or 9%) which are ‘pending’. These units are either known to be under offer or have planning permission in process. This leaves 48% of Gap’s portfolio vacant which, compared to 78% previously reported by Carter Jonas, indicates notable progress in reletting the empty units.

Mitigating losses

Return to the market

Recent lettings successes are evidence that demand still exists for prime retail stores. Retail markets have seen a sustained, albeit slow, level of recovery following the pandemic, helped by a return to offices and pickup in tourism. Against last year, there has been a decrease in store closures, increase in store openings and declining vacancy rates. This has given some businesses increased confidence to open new stores. As a percentage of the total floor area, significant progress has been made in the Midlands where 74% of the previous footprint has been relet or is pending. Many of these units are out-of-town outlet locations, where leasing has been bolstered by discount retail stores.

Encouraging steps towards post-pandemic recovery can also be seen in the South West and Wales, with 73% (by floor area) of Gap’s former space either let or pending. A large proportion of the units in these regions are in prime town centre locations, where steady leasing from hospitality and leisure-based occupiers has helped to generate greater market sentiment and increased footfall.

In a year defined by economic volatility and spiralling inflation, a ‘cut back economy’ has emerged as many consumers move to reduce spending. Coupled with supply chain problems and a tight labour market, this is causing many retail businesses to act with caution when committing to more floorspace. It is therefore unsurprising that over half of the previous Gap stores remain vacant. Numerous Gap units still have outstanding leases, but many have expired and some may have been surrendered. Combined with other costs to maintain a vacant property, this has the potential to generate huge rental losses for landlords. Losses will be greater in some areas, such as in London where market rents are the highest. Our research has found that 72% of Gap’s footprint by floor area, or 68% of units, in London remains vacant. This represents 21% of the total Gap store portfolio (both in floor area and number of units). However, little new retail space is likely to be built in the near-term and the conversion of many larger units and department stores to mixed-use accommodation is accelerating, helping to reduce vacancy rates and voids in rental income.

Retail location

Momentum has continued in the leasing of town centre units, accounting for 63% of relet Gap units across the UK. This includes both high street units and those located within a shopping centre in a main retail area. 46% of town centre units have now been let and 8% are pending, compared to 31% in our previous update. In particular, a rise in weekday retail and social activity as office workers return has helped uphold local economies in city and town centres. Although vacancy rates are still sizeable, confidence is also increasing for out-of-town shopping centres. Where we previously reported that none of these units had been let, 30% are now reoccupied and 13% are pending. Interestingly, almost all of these units are outlet stores. H&M opened its first outlet at the former Gap unit at Affinity Staffordshire in Q2 2022 in a move to meet customer demand for greater value for money. Bensons for Beds, too, have opened their first outlet in Doncaster in a store previously occupied by Gap. As prices rise, we can expect this trend to continue, with more retailers looking to offload surplus stock, avoid waste and offer financially accessible options. Out-of-town retail parks, which outperformed during the pandemic, are still leading the way. As a percentage of Gap’s previous footprint in these locations, 60% is now reoccupied. Although they only equate to 12% of Gap’s portfolio, it reflects the continued strong performance of the UK’s retail parks.

Tenant mix

The mix of incoming tenants has broadened, reflecting changing consumer shopping habits and helping to future-proof retail locations. Take-up has moved beyond discount retailers, which accounted for the majority of retail leasing during the pandemic, and a greater variety of occupiers continues to emerge. The creation of a single commercial Class E has simplified the conversion of units from typical retail uses to other uses such as offices or restaurants. This has facilitated an influx of different uses in units that were previously fashion retailers, removing an over-reliance on these tenants and shifting to mixed-use retail and leisure destinations. For instance, six former Gap units (or 17% of all re-let units) have been let to food and beverage retailers, mirroring the evolving retail landscape.

A couple of units have even undergone structural changes and/or been split into smaller units, widening their attractiveness and suitability to more occupiers. Notably, three units have achieved planning permission for external changes to convert to a fast-food restaurant or have already commenced renovation. Also, one high street unit in central London has been acquired by a media company and is to be repurposed for office use. Another, in Derby, is to be transformed into a mini golf course, adding to the city’s leisure offering. The accelerated removal of underutilised retail space is being seen nationally, typically with retail space being reduced and office, leisure or social facilities expanded. Nonetheless, leasing by fashion retailers continues. Since our last update, fashion retailers have increased their share in Gap’s previous floor area from 42% to 51%, accounting for an increase of over 140,000 sq ft (approx.). The majority of these occupiers are large retail chains, who still underpin the UK’s retail locations.

The Outlook for the Retail Sector

Threats to the near-term outlook remains elevated, with inflation ending the year in double digits and pressures on consumer finances persisting. Households have cut back on non-essential spending, slowing progress made in the post-pandemic retail landscape. Nonetheless, demand for attractive retail units in prime locations continues for an array of tenants. Although large voids still exist, the continued take-up of Gap stores is an encouraging example of how retail locations are evolving to meet consumer needs. A diverse tenant mix is fundamental, with leisure and social offerings making retail locations more than just places to shop. In the current challenging environment, those locations that develop a broader variety of occupiers will see greater resilience.

For further information, please contact one of our professionals:

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020 7518 4781

Head of Research

Daniel Francis

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01225 747266

Associate Partner

Tim Brooksbank

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020 7493 0685

Senior Research Analyst

Sophie Davidson

Source: Carter Jonas

Jan 2023

Apr 2022

Vacant Gap Stores by Retail Location at:

Source: Carter Jonas

Status of Gap Stores at

Source: Carter Jonas

Jan 2023

Apr 2022

Source: Carter Jonas

View this page on desktop to view the graph: total floor area of closed and re-let gap stores by region (in approx. st ft).

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