Work is recommencing at Land Securities’ Trinity Leeds development, but does this bode well for the development pipeline or is it too soon to call an upturn in retail property?

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The recession delivered a knockout blow to retail property development in the UK. As retailers shied away from deals and finance became difficult to obtain, developers put schemes all over the country on hold. And that means that right now, with the exception of Westfield’s scheme in Stratford - where the timing is dictated by the Olympics - there are no big city shopping centres being built in the UK.

So the reopening of the development pipeline has been eagerly awaited as a telling sign of retailers regaining their confidence to do deals. And this week that finally happened, when Land Securities confirmed on Wednesday that it was restarting work on its Trinity Leeds development in the heart of Yorkshire’s capital.

The cranes on the site came down in May 2009 and it has been quiet ever since, but next month work will restart on the scheme, which in total will comprise nearly 1 million sq ft of space and is due for completion in spring 2013. The decision by the UK’s largest commercial property company is not only a vote of confidence in Leeds, but in the broader retail property market.

A new mood

Land Securities retail leasing director John Grimes says the decision to go back on site was prompted by a new mood from retailers that had become used to developers effectively giving space away - if they were going to get new stores in Leeds, they were going to have to do the deals on sensible terms.

Getting there wasn’t necessarily easy because over the past two years retailers have become used to being offered very soft deals by developers that were desperate to fill their empty units in newly completed shopping centres. But although the demolition and the groundwork had begun, as Trinity was not yet coming out of the ground it was easier for Land Securities to put the scheme on hold than for those developers whose schemes were nearing completion in 2009.

Land Securities’ attempts to get Leeds off the ground have been helped by the fact that unlike many of the cities and towns where schemes have been placed on hold, Leeds is in the very top tier of retail destinations in the UK.

Grimes says: “Leeds city centre is one of the best UK opportunities and many of our retail customers have been very keen to access and expand in this market. The Leeds shoppers are very fashion conscious and hungry for new trends. Most of our retail customers tell us Leeds is a priority for their business growth.”

Within the city the Trinity site is at the heart of the prime retail pitch, sitting between the top streets of Briggate, Commercial Street and Albion Street.

One of the UK’s top five retail centres, the city has pent-up demand from retailers that have struggled to find stores with the right configuration in the city’s tight shopping core, and as a consequence have been forced to look off-pitch. “It’s very rare for anything of 6,000 sq ft to 15,000 sq ft to become available in Leeds and if it does it is snapped up quickly,” says Simon Lyons of Leeds-based agent Central Retail, joint letting agent on Trinity with Cushman & Wakefield and Jones Lang LaSalle.

This has meant that spend has been leaking away from the centre of Leeds to competing centres such as Sheffield’s Meadowhall and the White Rose centre in the city’s southern suburbs, with new retailers biding their time before committing to Leeds while they waited to see what new space was developed.

Grimes says: “It is rare to find the perfectly configured unit in the heart of a top 10 city centre. The demand for Leeds is very high, which is compounded by the lack of development in the UK over the next six years.”

The Trinity site is a complex one, involving a new development on a cleared area at the eastern end of the site, while incorporating the existing Marks & Spencer store - which is not within Land Securities ownership but will be extended into the scheme - and at the western end of the site incorporating the tired Leeds Shopping Plaza - which will be refurbished to the same standard as the new-build element of the scheme. Excluding the M&S store, the development totals 800,000 sq ft of space.

Back on track

What prompted Land Securities to announce at its interim management statement this week its intention to press the button was the scheme hitting 47% pre-let through deals that only completed in the last week. The deals are with a combination of retailers that already have stores on the site taking new or reconfigured units, retailers already in Leeds relocating into the centre and new retailers making their debut in Leeds.

In the latter category are those staples of any big city shopping centre development these days - Apple, Hollister and Cult/Superdry, which is taking a 20,000 sq ft store. All are new to Leeds and have proved in other centres that they are big drivers of footfall by offering something that is genuinely distinctive.

Relocations from elsewhere in the city include Next, which has agreed a deal on a 51,000 sq ft unit, and River Island, which is taking 15,000 sq ft. Oasis is relocating from the existing Shopping Plaza into the new-build element of the scheme.

Retailers already on the site taking larger units include Topshop/Topman, which are doubling their Leeds presence with a 40,000 sq ft store facing the Briggate frontage of the site, while Boots will occupy 75,000 sq ft and H&M an enlarged store of 25,000 sq ft, while Bhs’s store in the Leeds Shopping Plaza will be reconfigured to 60,000 sq ft. H&M, Boots and Bhs will be able to trade continuously in the Shopping Plaza throughout the works.

The aim is that at the Briggate end of the scheme there will be a cluster of unashamedly aspirational branded retailers, anchored by Hollister and Apple. Among the total of 140 units there will be smaller shops of between 2,000 sq ft to 4,000 sq ft here, which the developer hopes might tempt in brands that might otherwise have

gone to the Victoria Quarter - the so-called Knightsbridge of the North - into the new scheme. While the Victoria Quarter - anchored by Harvey Nichols - has been a huge success, many of the units are very small and over several floors.

As with any new scheme these days there is a significant leisure element too, and Everyman - the upmarket cinema chain backed by the Lewis family of River Island fame - will make its debut outside the Southeast with a four screen complex on the site. Restaurant chains such as Yo Sushi have also been signed up.

The site has a long history and was bought by Land Securities when it acquired rival retail property developer Tops Estates in 2005. It is being developed in association with locally based developer Caddick, which although it has a small stake in the scheme, gives a local perspective to the project.

Located right in the city’s core, sitting between the three main shopping streets of Briggate, Albion Street and Commercial Street, it was always going to be a sensitive site and vital to the city’s future, and consultation with everyone from the city council, the chamber of commerce and local community groups has been vital to getting the scheme right and helping to explain the inevitable delay in construction.

Pent-up demand

Strangely, despite all the pent-up demand, Leeds is not a city short of shopping centres. As well as the Shopping Plaza, there are the Merrion and St John’s Centres - which form the site of Hammerson and Town Centre Securities’ plans for a John Lewis-anchored scheme at the northern edge of the city centre that remain on hold - and there is the Headrow Centre, which has been rebranded The Core but at the moment still has a lot of empty units.

None of the existing schemes in the city is more than 500,000 sq ft and they lack the critical mass that a scheme the size of Trinity will have. Lyons says that with the anchor stores now

in place, the focus of the marketing of the new scheme will be on attracting retailers not already represented in Leeds. “The greater emphasis will be on new entrants to Leeds,” he says. “We think there’s a lot of pent-up demand from people who aren’t in Leeds already.”

One swallow doesn’t make a summer and Land Securities’ restart of work in Leeds in itself isn’t enough to call the recovery of the retail property market. But what it does do is shows that - in the very best centres at least - retailers and developers have finally got back to a position where they can do business on terms that each side feel they can make money from. That should at least be a positive omen.

Exception to the Rule?

Land Securities decision to restart work in Leeds is the first sign of a recovery in the development pipeline. But experts fear it won’t signal a wider return to developers having the confidence to start work on other projects around the country. “I think Leeds is an exception,” says Jones Lang LaSalle head of retail Guy Grainger. “Development is facing fundamental issues in terms of it being viable.”

The boom in development over the past decade was fuelled by generous deals with department stores in order to secure them as anchor tenants, but which were made possible by a plentiful supply of retailers willing to take up the other units at ever higher rents. In most locations the market for those deals has now dried up.

The expectations of local authorities for ever-higher Section 106 agreements - the community benefits that the developers of large schemes are expected to pay for - also grew dramatically during the downturn but haven’t adjusted downwards in the recession. Developers are looking to councils for help with schemes through a new mechanism called Tax Increment Financing, hoping that councils will see the benefits new schemes will bring both, including helping their coffers through the greater business rates that will be paid.

Grainger says something will have to give if development is to kick off more widely. “Either land values will have to change, there will have to be a fundamental shift in department store deals, or local authorities will have to help.”