Make the most of what you’ve got, runs the saying. For developers, this is certainly the case with shopping centres, which age and decline and need renewal, like any other asset. And for retailers, a refresh can present an ideal opportunity to add a new store to their portfolio that suits them down to the ground.
The new-build pipeline is prey to the widespread woes eating into the economy as a whole and while many schemes are completing this year, there is a less than friendly climate for developers that want to embark on fresh shopping centre projects. So rather than building new centres, developers are now looking at existing sites with a view to squeezing as much out of them as they can.
Location, of course, is key. While this year’s flood of new retail space is, on the whole, welcome, whether a centre is new or not is less significant compared with where it actually is.
Redevelopment and extension may be keys to unlocking a catchment area retailers have been waiting to get into. They can also be an opportunity for retailers to achieve a far more bespoke unit than might be offered in a new centre.
Sainsbury’s property director John Rogers says: “It is rare to find undeveloped land in these built-up areas. So if a shopping centre, or similar, is being redeveloped we will always consider the opportunity.”
The huge tranche of space that has come onto the market this year may have provided retailers with a welcome abundance of opportunities but retailers needn’t overlook existing centres as potential sites.
Updating a centre is a costly business. The cheaper option is simply to reconfigure units, but sometimes it’s best to bite the bullet and invest in a full-blown redevelopment. Neither is a decision that a landlord will take lightly. But in both cases, before it lays a finger on the existing centre, a landlord will invariably have secured retailers to occupy any new space.
One recent example of planned reconfiguration is in Liverpool. Land Securities’ rejigging of Clayton Square to combine three of the existing stores and create the 24,000 sq ft (2,295 sq m) that will house a JJB Sports superstore is typical of a shrewd move by a landlord, and one upon which a retailer can capitalise.
This highlights the main reason why a developer revamps a centre in the first place. Given the money involved and the disruption it causes, refreshing a centre won’t necessarily generate significantly higher direct returns on the individual units. Updating a scheme is more about enhancing its image overall, bringing in fresh new brands and boosting footfall.
After all, as the retail market evolves, so too do retailers’ requirements for their stores, and a centre that was in touch with the demands of the industry when it was built 20 years ago risks becoming dated.
Nigel Poad, managing director of developer Modus Southern, says: “Strengthening the sustainability and longevity of a scheme is what it’s all about.” He adds: “Some people believe you’ve got to do something to a centre every five years. You can have quite a significant impact by reinvigorating and updating a development. There are incidents where retailers are desperate to take space within a catchment but they can’t.”
At Clayton Square, securing an anchor tenant in the form of the JJB Sports superstore will send out a message about retail mix. And the fact that Land Securities is investing in the scheme will draw attention from both tenants and shoppers.
Redevelopment is also a way of using redundant space that is generating little or no income, as with Spindles Town Square shopping centre in Oldham, Greater Manchester. In this case the landlord, ING Real Estate, had 18,000 sq ft (1,670 sq m) of space gathering dust, in the form of a disused food court. Through a carefully managed£3 million reconfiguration, the centre now has a split-level flagship H&M store in its place – the first in Oldham.
ING Real Estate head of asset management Steve Gay says: “The space had been pretty much unused for years. We’ve created value on a space that had no value before, created space that H&M was looking for and stopped some of the leakage out of Oldham.”
While£3 million is hardly peanuts, it’s difficult to put a price on the appeal that bringing in a brand such as H&M can have on a centre. ING says it has already reaped the rewards: footfall has increased by about 9 per cent and Spindles is attracting new customers who might previously have gone elsewhere. “You have to have your flagship brands in the centre in the right space in order to attract the customers,” says Gay. “One of the benefits of getting some secondary anchors in is that it allows us to attract new retailers that can now see the benefit of being close to H&M.”
Investment firm Resolution specialises in getting the most out of unused assets in retail property. Its director Peter Todd says: “Property is often a very inflexible medium for retailers. Their concepts change so much quicker than property does. Updating a centre allows a developer to adapt to retailers’ needs.”
In this respect, too, redevelopment can benefit all involved. Retailers get the store size they want because often they have consulted with the landlord before the work starts and developers find themselves with a more attractive asset.
For the retailer, being involved with a developer from the ground upwards might be the only way to get the location and size it is looking for. Despite the abundance of new centres coming onto the market, it is still hard to find the perfect match and even harder to convince a retailer to give up a lease once it is in.
Neil Hockin, director of surveyors Lunson Mitchenall, says: “If you look at any existing town centre there are very few 18,000 sq ft units in prime pitches. If you try to convince someone like Boots to give up that sort of space it will be very difficult.”
Sainsbury’s has taken full advantage of a recent redevelopment that involved the conversion of the former Allders department store on The Headrow in Leeds, taking a 17,000 sq ft (1,580 sq m) store there last year. Capital & Counties’ decision to carve up the site into four different units proved to be a wise one. Since Sainsbury’s signed up, the scheme has also attracted both Argos and TK Maxx.
Not every year brings the bumper crop of new centres that the sector has witnessed in 2008. Next year will be more typical in terms of the amount of space coming on to the market and retailers looking at expansion will have to pay more attention to existing centres. This reinforces the tactic of redevelopment as both a worthwhile move for developers and an equally important consideration for retailers.
Furthermore, space in the UK is hardly in abundance, so redevelopment is often the only option. Rogers says: “With land in finite supply, we are adopting new approaches to store development, working in joint ventures with developers and re-jigging formats to match the needs of towns.” He points out that this flexible approach means the supermarket chain is “seeing opportunities for new and improved Sainsbury’s stores across the country”.
The UK retail property market is one of the most mature in Europe. The result is a very crowded playing field compared with the markets of India, China and Eastern Europe, where developers are seizing the opportunity to capitalise on the acres of untouched space. In the UK, therefore, redevelopment is often the only option. As was the case in Oldham, there may be insufficient demand for a new development, but shoppers are nonetheless crying out for an improved retail offer.
A retailer must be flexible and canny enough to make its portfolio grow economically and according to its needs. The amount of space that has come onto the market this year is a great opportunity – new centres are a novelty for the local demographic that attract instant exposure. However, there’s no point in opening in a new centre for the sake of it. If a retailer signs for a store impulsively just because of the great deals that can be had and the fact that the scheme is new, the short-term benefits may quickly be replaced by the consequences of not doing enough homework.
New centres have their own risks. As shown by schemes that have opened this year, it’s rare to find a new shopping centre that is anything above 90 per cent let. And even when it does open, there are no guarantees on how well it will trade. “An existing centre is a proven entity,” says Todd. “A retailer can hit the ground running. It’s proven that it can serve the catchment.”
For landlords, redevelopment is a long-term move to ensure that an asset continues to be viable. Retailers can use this chance to secure a bespoke unit that ticks all the boxes and opens up a catchment that previously eluded them.
Every new venture has its risks, of course, but if it’s done properly, then updating a centre can be a virtuous circle that pleases both parties.