Retailers are always on the lookout for new space but funding for developments is scarce. As Ben Cooper reports, developers will have to revamp the centres they already own if they are to keep drawing in the tenants
When Chartered Land set about revamping its Ilac shopping centre in Dublin, River Island seized the opportunity it had been waiting for. The fashion retailer had had its sights set on Dublin for a flagship store for some time but had not been able to find the space. Thanks to the developer knocking three units into one, the retailer is now preparing to open a large store that fits its requirements perfectly.
“Chartered Land has created a flagship store for us, which we wouldn’t have got in the same time scale,” says River Island property director Frances Baker. “It was the right thing to do – it will be a fantastic unit.”
Such reconfigurations are a shrewd move for the developer, and retailers often find them more beneficial than new builds. Given the uncertainty for developers in the current climate, with big names such as British Land being forced into rights issues in recent weeks, now is hardly the time for them to be thinking about embarking on new schemes. But the fact remains that shopping centres need constant maintenance and all eventually go out of fashion. So, even if the funding isn’t there to build new space, developers still need to fork out to keep their assets fresh.
For retailers, this is as much of an opportunity as a problem. Upgraded space is often better configured, providing the size and location a retailer needs for growth. And because developers often consult prospective tenants before rejigging units, this can result in tailor-made spaces.
With the tough times showing no sign of abating, retailers will increasingly need to consider taking reconfigured space. HMV property director Mark Bowles says this is what the entertainment retailer is already doing. “You have to weigh up all the opportunities at the time, but if reconfiguration presented a situation in a market that we were keen on and had a requirement in, we would look at it,” he says.
For developers looking to get the most out of a shopping centre, there are several options available. From a simple spruce-up of the interior to a full-scale reconfiguration of a centre’s layout, each brings benefits to both the developer and its tenants. It can also mean the difference between a store being a success or a poor performer.
Chris Jofeh, director of property consultancy Arup, says: “From a developer’s point of view, the worry is when you start losing tenants because they’ve gone out of business.”
Reconfiguring a centre can also be of great financial benefit to landlords and retailers if efficiencies such as energy-saving lighting are introduced during the work. As Jofeh says: “All major landlords have a very keen eye on the bottom line, but perhaps a recession brings it into even sharper focus. You can do [a reconfiguration] not only to attract more footfall and increase sales; you can also save a lot of money.”
It is crucial to keep investing in a scheme, but this will be even more important over the next 18 months or so, as retailers do everything they can to woo shoppers. Investment is also a way that landlords can prove they are serious about working with their tenants through the hard times.
At St David’s 2 in Cardiff, developer Land Securities is embarking on a mixture of extension and refurbishment, both of which it says provide numerous opportunities for retailers.
Land Securities head of retail development Lester Hampson says: “With a refurbishment like this we can talk to retailers beforehand and make sure we give them exactly what they want. It’s more collaborative than a new build. What we’re doing in Cardiff is providing units that are modern, well configured and suit retailers’ requirements.”
With John Lewis, Kurt Geiger, All Saints, Crew and Hugo Boss all making their debut in Cardiff this year as a result of the redevelopment, the tactic appears to be working.
Another bonus for developers of revamping a centre is the simple fact that it is cheaper than building a new scheme and less of a gamble. As Hampson explains: “It involves substantially less capital and there’s less risk. If there’s less risk, you can afford to take a reduced return compared to the return you look for on a new build.”
Updating the outdated
Some of the centres built in the 1970s and 1980s, when retail requirements were very different, simply don’t offer the right kind of space to stay competitive today. In these cases, reconfiguration of units is what’s called for – and there are plenty of developers that have seen the need.
Chartered Land’s phased reconfiguration of its Ilac shopping centre has already reaped considerable rewards. The total refurbishment of the centre and the redesign of the Henry Street frontage succeeded in enticing River Island to the merged 15,000 sq ft (1,390 sq m) store in December.
Baker is pleased with the results. “We’ve been trying to get a flagship store on Henry Street for quite a long time,” she says. “Even with the new developments in Dublin, we wanted to be on Henry Street. Chartered Land putting those units together was the only way we could have got the space we needed before any of the new developments were created.”
River Island isn’t the only retailer to have been drawn by these changes. Since Chartered Land’s work began, it has added Debenhams, H&M, Zara and Game to its tenant mix.
Leicester’s Shires shopping centre has been another beneficiary of reconfiguration. Before its overhaul, which was completed last year, Next – one of the city’s most valued exports – was trading from a 7,000 sq ft (650 sq m) store. Today it inhabits a 50,000 sq ft (4,645 sq m) shop, one of its larger stores.
The transformation of Next’s fortunes in Leicester is a perfect example of how a developer can make the most of its assets. Before Hammerson embarked on the expansive refurbishment and extension of the Shires – now rebranded Highcross – the centre was beginning to look old and tired and was falling behind the standards that modern retailers expect. Typifying this was Next, which has grown immensely since it started trading in the Shires and was stuck in a store it had outgrown with no unit large enough to relocate to.
A Next spokeswoman says: “The timing was perfect for us. To be able to move into bigger premises was just what we needed. It’s a contemporary store and its position is very good. Leicester is very important for us and we would never have removed our presence, but Highcross was an opportune moment to get a better store.”
However, the benefits of a refurb aren’t always so cut and dried. Sprucing up a scheme that is beginning to look run-down is clearly a good move, but sometimes a centre’s problem is not how it looks inside or even the size of the units as much as its location.
Mosaic group property manager Neville Maling says: “Anything that’s improving trade at this time is always a great help and you’ve got to welcome any landlord being proactive about managing its assets. But I’m not 100 per cent convinced in all cases that it solves all problems.
“In big cities where you’ve got big new schemes, the old ones are becoming secondary and they’re trying to keep the tenant mix up. But if the general public are already going to the new scheme it can be too late.”
In such hard economic times, costs are being guarded jealously. So if a developer wants to go ahead with painting the interior of a centre or installing a new lighting system and expects retailers to pitch in with extra service charge costs, it needs to be sure it can justify every penny.
In today’s retail property world, nothing is certain and any investment is a gamble for both retailer and landlord. There are still retailers out there looking to add shops to their portfolios, but they are being far more discerning. Taking space in a reconfigured centre isn’t a guarantee of success, but it does remove some of the risk.
For retailers, the key is having the right space in the right location. So for developers, making the most of what you’ve already got can be a rare win-win situation in these extraordinarily tough times.