In the past 12 months a raft of new schemes have transformed the UK’s retail landscape, but the downturn means the challenges they face have intensified. Ben Cooper reports
Nobody could have forecast the state of the economy when the latest wave of shopping centre developments was planned. A whopping 4.3 million sq ft (399,470 sq m) of retail space has been added to the top 100 in the past 12 months, with plenty more to come before the year is out. But given the inauspicious climate these centres are being born into, the new space has created issues in itself.
This year’s Top 100 Shopping Centres table has some notable new entrants that reflect how much the market has changed. Major centres in Liverpool, High Wycombe, Belfast, Derby and Cambridge are now up and running, drastically altering their host cities and the surrounding retail scene. In line with a shift in government thinking over the past two decades, these centres are serving as important fixtures in urban regeneration programmes, bringing new blood to towns and cities that were crying out for change.
But while the much-needed retail injection is clearly a positive, it has been overshadowed by the troubles facing the market. A surge in supply just when demand is wavering slightly could spell trouble and landlords are having to work harder to woo retail tenants already. But the picture is perhaps not as bleak as some are making out and while it is true that driving rental increases is more of a challenge than it was a year ago, there is still retailer demand.
The burden of an unfavourable economic climate has not been eased by certain pieces of government legislation in the past year, particularly the changes to the empty property rate relief laws, which have placed a huge weight of costs on developers unable to fill property voids. The legislation has added to an already tense climate in which developers are under pressure to fill their centres at all costs, just when retailers are trying to rationalise their existing portfolios.
This is all bad news for landlords but for retailers it can be seen as an opportunity, according to Savills director Nick Symons. He says: “Some retailers have taken the decision to rationalise portfolios, which has actually been good for the market because there is now a genuine focus on profit rather than turnover. Rationalisation also inevitably shifts attention from quantity to quality and the new space that has become available either for retailers entering the market or those looking to expand has sought to provide quality retail locations and environments.”
The shopping centre landscape has altered dramatically in the past 12 months. The most recent opening, Grosvenor’s 1 million sq ft (93,000 sq m) Liverpool One, typifies the bold retail-led urban regeneration that has been anticipated by retailers and consumers for years. Aside from their regenerative role, centres have opened up whole new retail markets that were previously inadequate for the retailers that were looking for space.
Brookfield Developments’ Eden Centre in High Wycombe is another case in point. The 600,000 sq ft (55,740 sq m) centre has attracted House of Fraser as its anchor, as well as Zara, Joy, H&M, Office, Gap, LK Bennett and Jane Norman. The draw of a centre like Eden is such that big names will consider a town like High Wycombe, which previously had little pulling power.
Notable new entrants in the top 20 have caused a shift down for everyone below them, although Capital Shopping Centre’s MetroCentre in Gateshead and Lend Lease’s Bluewater have kept their number one and two spots respectively. Grosvenor will be pleased to see Liverpool One coming straight into third place, narrowly behind Bluewater when its second phase opens in September.
The other new arrivals in the top 20 are Westfield Derby and Silverburn, coming in at 13th and joint 14th place respectively, both with roughly 1 million sq ft. Elsewhere, big-name openings from the past year that appear in the top 100 include Cambridge’s Grand Arcade, Victoria Square in Belfast, the Eden Centre and St Stephen’s in Hull.
But while, on the whole, this year’s new schemes have opened in a healthy position in terms of lettings, their novelty has been one of their attractions to retailers. The high occupancy figures each has achieved slightly mask how tricky the market has become and the story elsewhere is not quite so jolly. While, in the case of Liverpool One, the surface looks calm, Grosvenor has had to work extremely hard to get to this level of lettings and generous incentives are now required.
While there is still retailer demand out there, it is perhaps more challenging than developers are comfortable with. The biggest trial for landlords – and the greatest opportunity for retailers – is meeting the increasingly stringent demands of retailers. Space is not at the premium it once was and retailers are rightly exploiting this.
As stores are rationalised as they brace themselves for the more Darwinian atmosphere emerging in the tougher market conditions, weaker elements of the portfolio are being left behind. This is a shrewd tactic for retailers that stand to emerge meaner and leaner but, for landlords, there are voids emerging that they are finding harder and harder to fill.
Rather than easing this tension, in April the Government’s punitive changes to empty property rate relief laws added more fuel to the fire. The legislation, which doubled the rates landlords must pay on property left empty for more than three months, has saddled landlords with massive bills, meaning they now want to fill empty units by any means. This is often at the expense of the centre’s tenant mix, which is so crucial to driving business.
“The biggest challenge is getting more competition between retailers to drive rentals,” explains Hammerson director of retail leasing Sheila King. “If retailers want to be in a scheme, they will pay the going rate. The key is to get the tenant mix right. Where you’ve got that right you can drive competition and rentals. Diversity is definitely the key. It means that with interesting retailers people want to be there. You’ve got to have the brand of the moment in your scheme.”
But what is meant by “brand of the moment” is also shifting as times get harder. Not only has the shopping centre market changed, so have the rules of retailing – especially in fashion. A polarisation is emerging between the highest quality luxury stores and value and this in itself presents more challenges for retail landlords.
“It’s no longer just about price – it’s value,” explains CACI principal consultant Nielsen Harrap. “People now take it for granted that prices are low, so you have to provide value fashion to keep people visiting a centre. For landlords, it comes down to a differentiation of offer so it’s about doing something that’s exciting or different that gives the consumer exactly what they want.”
Not only are the rules of retailing changing, but retailers’ requirements are adapting to harder times. The challenge, particularly for the weaker centres, is keeping the shopping environment attractive, flexible and above all viable.
Cushman & Wakefield head of shopping centre leasing Justin Taylor says: “Viability is the big issue for developers now. It’s competition and pressure that drives up rents, but what’s happened is the whole economy has changed. A lot of retailers are resizing and there’s a feeling that if you don’t have to commit to something now it’s better to wait until next year. Rents have come under pressure and yields have moved out. The challenge will be to get centres moving forward.”
There is still some way to go in this year’s shopping centre pipeline. Liverpool One is only half open – the second phase is due in September – and two Hammerson projects – Cabot Circus in Bristol, which it is developing jointly with Land Securities, and Highcross Leicester – are also opening in September, not to mention the much-vaunted Westfield London, which will launch on October 30.
It has been a year of immense growth in shopping centres. For many retailers, particularly those best equipped to resist the effects of wider economic problems, it has offered some fantastic opportunities for expansion. New retailers have been drawn into cities on the strength of the new centres that have sprung up there, bringing fresh blood and the more diverse tenant mix that is the golden goose to landlords.
However, it can’t be ignored that while there is now more retail space available, it has come at a time when there are fewer pounds in shoppers’ pockets. The downturn is presenting its own challenges for landlords and their retail tenants, and is likely to continue for at least another year and a half.
Research by CACI. Schemes are ranked by total sq ft. Using its Retail Footprint model, CACI analysed present and future shopping patterns, classifying retail centres into more than 50 different types, according to retail mix, market positioning and evolving shopping role.
The credit crunch resistant consumer data was compiled using FRESCO, CACI’s individual segmentation tool driven by financial behaviour. Jointly owned with Gfk NOP and using the Financial Research Survey, it provides a detailed picture of financial attitudes and behaviour.
Traffic lighting divides the top 100 according to credit crunch resistance (Green – top 15; red – bottom 15) and development impact (Green – more than 5 per cent uplift; red - more than 5 per cent fall).