The credit crunch is hurting bulky goods retailers, so how are the parks that house them holding up? Liz Morrell reports

For retailers and landlords alike, bulky goods parks are not a fun place to be at the moment. The credit crunch has hit retailers in this sector hard as consumers increasingly hold off on big-ticket purchases, such as furniture and white goods.

Although there has not been a repeat of the spate of administrations of two years ago when Courts, Klaussner and Powerhouse all collapsed, their failure has meant lower demand for space and, in some parks, vacant units have still to be re-let.

It’s not been an easy ride for the remaining players either. Over Christmas, Land of Leather and ScS Upholstery reported tough trading forcing them to reconsider their strategies. As a result, their previously ambitious expansion plans have been put on hold.

Retailers, too, have been reviewing their existing space and resizing and reformatting stores. “Over the past year or so we have seen a new supply of space coming through from existing retailers, such as B&Q, which is looking to shed space,” says British Land head of retail Andrew Jones.

With more space available, that’s good news for tenants. “The extra space is adding to the supply side so there is little upward pressure on rents,” says Jones. “Rents are going down,” agrees one agent who asked not to be named. However, he warns that landlords may try to disguise this by offering reverse premiums, which means that although rent levels appear to have been maintained, they have in effect fallen.

Savills retail warehousing team director Johnny Rowland agrees. “Headline rents that landlords are looking to achieve are more realistic,” he says.

“What has changed is that 18 months or two years ago you would just anticipate rents rising. The difference now is that if you get a rent increase there has to be an event [such as subdividing a unit and reletting it] that triggers it,” says Hammerson director of retail parks Andrew Berger-North. “Gone are the days when you could expect to see a 5 per cent growth for doing nothing – you have to earn it,” he says.

This is not possible at every park, however. “The issue on rents is affordability and the big challenge is for owners of bulky goods parks where rents are in excess of£25 to£30,” says Berger-North. “That’s where, as a landlord, you would be scratching your head, because that’s where it would be hurting retailers. I’m not sure how you would solve that apart from accepting that rentals will stagnate,” he says.

The number of retailers looking to expand has shrunk considerably. Tesco Homeplus, Asda Living, Dreams, Pets at Home and Dunelm are still on the hunt for sites, say agents and their improved bargaining position means they are pushing hard for cheap deals.

“Deals and rents have got softer,” agrees Jones. “There are deals to be done, it’s just you have to cut your cloth,” he says. He cites the example of a retail park the company inherited in Dumfries that had five vacant units, but now has only one remaining.

So what are the landlords of these beleaguered parks doing? Many have been shuffling their portfolios to reduce their reliance upon bulky goods. At British Land, about 85 per cent of the portfolio is now Open A1 rather than bulky goods consent. “In Open A1 we have been benefiting from high street retailers coming to the parks, but there has been no such parallel in bulky goods,” he says.

Berger-North, whose company has about 70 per cent of its space as Open or Restricted A1, agrees. “We tend to make sure we have the better parks or ones where we can do asset management,” he says. He claims this has allowed the company to increase rents by 8 per cent, although he admits the new bias to open A1 parks has helped boost the figure.

Asset management is key for landlords wanting to boost trade on struggling bulky goods parks. This may mean subdividing units or introducing mezzanines to open up opportunities to those retailers still taking space. Others are encouraging bulky good retailers in parks that have Open A1 consent to resite to bulky goods parks allowing the landlords to relet the space to other tenants. “We have resited the likes of PC World and Currys off a number of our shopping parks and relet to Marks & Spencer, for example,” says Jones. “We want to do surrenders because we can relet at higher rents and improve the tenant mix.”

Improving the appearance of the park also helps. “Landlords are refurbishing where possible, but it’s a tough market to do refurbishments in,” says Rowland.

And leaving retail units empty is no longer an option. “If you have a vacant unit you have to let it come what may, otherwise you will struggle at rent review,” says Rowland.

“The idea that a vacant unit is an opportunity has gone. People are desperate to get stuff let to protect their established rent value,” says another agent.

Landlords and their agents are also looking for possible chinks in the planning consent of such parks. “More than ever, a lettings agent’s role together with a planning consultant is absolutely key for landlords,” says Rowland. “They must look at every angle on the planning and exploit every opportunity there is. There are certain words in planning consents that will offer other retailers the opportunity to trade,” he says.

Primary business

Rowland points to Hammerson’s Victoria Park in Nottingham where consent appeared to be restricted to bulky goods. “The wording said it should primarily be used to trade bulky goods, but we confirmed that primarily meant that providing 51 per cent was bulky goods, the remaining 49 per cent could be Open A1,” says Rowland. That has allowed Next to take a unit with a mezzanine floor selling 51 per cent home and the remainder clothing. Argos has also gone into the park on the same principle.

The retailers took the space from a downsized B&Q unit, explains Berger-North. “B&Q had opened a 100,000 sq ft warehouse there a year earlier and in January 2006 decided to close the store completely. We persuaded them to stay, but we took 30,000 sq ftback. That enabled B&Q to reduce its overheads significantly and allowed us to bring two new retailers to the park and build on drawing other high street retailers in,” he says.

The changes also enabled Hammerson to push up rents from£14.50 a sq ft (£156 a sq m) to£18 a sq ft (£194 a sq m). And securing planning consent for a further 50,000 sq ft (4,645 sq m) last year has allowed it to secure more high street retailers and pushed rents even higher, to£22.50 a sq ft (£242 a sq m).

And there could be more radical solutions in the offing, according to Rowland. “Landlords are considering all the options, but there is an underlying potential for retail schemes to be replaced by residential. That hasn’t happened yet, but there are one or two parks that haven’t traded well and have been flogged to death with the retailers where you could get vacant possession of the whole thing and put residential in instead,” he says.

“The really proactive landlords are asking, ‘Why don’t I buy this second-rate bulky goods park, go to the council and say let’s knock this down, you give us a food planning consent and we will add some residential and affordable housing and make it a mixed-use scheme that ticks all the boxes of regeneration?’” says Rowland.

However, he believes the worst is over for bulky goods parks. “The big headlines will go away and I think everything will stabilise. Retailers will be looking at next year to see if big ticket items pick up,” he says.

Jones agrees that things look bleak, but not desperate. “The outlook over the short to medium term for bulky goods is not great in terms of rental increases, but I don’t see huge numbers of retailers going to the wall,” he says. “Instead, people will look to rightsize and rationalise their space through mezzanines and reformatting,” he says.

“It is a more difficult market, but with the right portfolio and asset management skills you are able to counter that,” says Berger-North. “Things are getting tougher, but most retailers aren’t closing their books to new stores, they are just becoming more selective,” he says. And that means landlords are having to work harder to get retailers to select them.

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