An ambitious project to extend Newcastle’s largest shopping centre is under way, but as Ben Cooper reports, while lettings are going well, the older part of the centre is set to struggle

On the surface, the major extension to Newcastle’s Eldon Square shopping centre looks like it will be a success. Despite Capital Shopping Centre’s (CSC) sizeable task of filling the 410,000 sq ft of extra space that is due to be unveiled in eight months’ time, its new stores are being snapped up. Scratch a little deeper, though, and all is not what it seems.

Firstly, it’s important to point out that Eldon Square was in need of revitalisation. CSC and Newcastle City Council’s project to bring it up to modern standards has been a long and ambitious one. One retail property director says: “Newcastle has always been an expensive city in terms of property costs and historically there haven’t been the opportunities for some retailers. From what I have seen CSC is now bringing those opportunities.”

Since the centre opened in 1976 it has been the undisputed leader of the pack in Newcastle. But with age, it was beginning to fail to meet retailers’ requirements. The smaller units that suited retailers 30 years ago no longer suffice and CSC has set about satisfying these evolved demands.

CSC director of asset management for Northern England Martin Breeden explains: “There hadn’t been any development for a generation. The key thing was to introduce the flagship-style stores to the city. This is about bringing the right size shops.”

In practical terms this extra space – the third and final phase of the project – will result in a new Debenhams department store and 22 smaller units at a cost of £170m. All being well, the shops will open their doors in February next year. Although Breeden admits that letting the new space in the present market has not been easy and that CSC has “had to be more flexible than in previous markets”, he adds that demand has been high since the space was on the table.

With Debenhams already fitting out and the majority of the smaller units let or in solicitors’ hands, it seems to be a job well done. New Look, River Island, Topshop and Dorothy Perkins are among the multiple retailers to have been wooed by the new space on offer.

However, the problem that CSC faces is that while such retailers are keenly signing to the new units, a large proportion of these are leaving their existing stores in the older part of Eldon Square to fill them. And so far, there are few takers for the gaps they will leave behind.

River Island is one example. Property director Frances Baker says the move was an easy decision that boiled down to one simple fact – the new unit will double its selling space. “The new store won’t be much bigger in terms of gross space, but it’s much better configured. It’s perfect for our needs,” she says.

Hollow victory for CSC

Despite meeting the tough demands of retailers over the past 18 months, some say it has been a hollow victory for CSC. You only need to look at what Arcadia is doing to get a glimpse of what is going on behind the scenes. The fashion giant will open some 47,000 sq ft of shop space in the extension – a 35,000 sq ft Topshop and Topman, a 6,000 sq ft Dorothy Perkins store and two 3,000 sq ft units for Burton and Miss Selfridge. The bad news for Eldon Square is that every one of these brands will leave the old part of the centre to do so.

Jones Lang LaSalle director Roger Kemp says: “It’s solving one problem but creating another. The question is, will it be a success or will it just leave holes? I think it will be a long time before the empty units that are left behind are let on a long-term basis.”

The problem in Newcastle, as elsewhere, is that the sky-high rents that were born out of the boom have become insurmountable and voids have started to emerge, even on the prestigious Northumberland Street. The result, as Kemp says, is that “availability in the city is at an all-time high”.

This is the last thing CSC wants to face when it is about to flood the market with another 410,000 sq ft. The developer is reluctant to speculate as to how many of the stores in the existing part of Eldon Square are likely to be empty when the extension opens, but it is clearly a big concern.

Newcastle City Council head of property services Nick Rowley says the old area of the centre is suffering and it is having to creatively market the space to generate interest. “It doesn’t feel very comfortable at the moment but in the long term I think it’ll come back.”

Ian Thurlbeck, director of independent retail property consultant Thurlbeck & Co, believes the problems are symptomatic of the times. He says that when “things return to some sort of normality” there will be demand for the vacated space in Eldon Square. In some surveys, Newcastle has emerged as one of the most expensive cities for rents, reaching up to £300 per sq ft at its peak. Thurlbeck adds: “In some of the stores being left behind there needs to be a reality check on rents if CSC is going to fill them.”

It is unfortunate that the cruel nature of the climate means that developers are sometimes being punished for improving a city’s retail offer. In many ways an extension to Eldon Square is exactly what Newcastle needs and that is reflected in the fact that many top retailers have eagerly taken this new space. But in doing so, it will release a glut of older units at a time when only the pickiest of retailers are expanding. A recovery in the property market is a long way off and so is a lasting solution to CSC’s newly created problem.

Since we last visited…

Discovery Properties has put development work on The Oval shopping centre in Darlington on hold as it struggles to secure further funding. The 300,000 sq ft centre, which was set to bring a Debenhams department store to the town, looks unlikely to be completed
until 2012.

North of Newcastle, Cramlington has also suffered a blow. Hammerson’s announcement a year ago that it would not start any new projects scuppered hopes for a 320,000 sq ft mixed-use project that the developer had agreed to embark on in 2006. The plans have now been put on hold indefinitely.

Thornfield Properties has completed a 270,000 sq ft regeneration project of Thornaby town centre, near Middlesborough. The £30m Pavillion Shopping Centre project was completed in April and has brought retailers including Bonmarché, New Look and Peacocks to the town. It is anchored by Asda, Superdrug and Iceland.