Analysis: The retail property location challenge

Northern-based retailers such as Morrisons, B&M Bargains and Wilkinson have also set their sights on growth in the South from their traditional bases in the North.

But can such a black and white picture of Britain’s retail property market have emerged so quickly in the fall-out from the recent recession? After all, most of the UK’s regional cities have thrived over the past two decades, with a series of retail schemes transforming the centres of Liverpool, Birmingham, Bristol, Manchester and Glasgow, among others, and Leeds being the latest to be going through the redevelopment process.

 “I would not so much divide it along North-South lines but across primary and secondary,” says Jonathan De Mello, senior director, head of UK research at CBRE. “There are a lot of good trading models outside the Southeast but there is no doubt that fiscal austerity is having a deep impact on how areas are performing. You have the cash cows like Sheffield’s Meadowhall, Manchester’s Trafford Centre, Liverpool One and Birmingham’s Bullring, then you have the smaller towns where you are seeing steep like-for-like sales declines.”

De Mello points out that even the Southeast cannot be considered one homogenous market. “I would separate it further between the centre of London, where sales are going up, plus star performers such as the commuter market towns around London. These are performing strongly compared with similar market towns around the rest of the UK, many of which are more reliant on primary industry and are less affluent.”

The upshot has been well documented decline in many cities, especially in the north of England, and an attempted government response through the Portas Pilots that seek to revive town centres through a variety of initiatives.

Yet Matthew Hopkinson, director of retail at LDC, points to fundamentals working against many areas. “Retailers are looking hard at unemployment levels, wage levels and house prices and that stands against many Northern centres,” he says. “Consumers are increasingly attracted to major retail destinations, which is why, when announcements about extensions to, for example, the tram system in Manchester are welcomed, many local authorities don’t realise that in reality this means more people from satellite cities travelling into Manchester, not the other way round.”

Responding to the market

Fashion retailers such as Arcadia and New Look are carrying out downsizing exercises, which involves them exiting smaller high streets to focus on larger stores. Arcadia boss Sir Philip Green has said that if Topshop launched now it would probably be an online business supported by flagship stores.

However, it is not all about downsizing. Others prefer to look at different formats to respond to shifts in the retail market. For example, department store group Harvey Nichols is already searching for further locations for its new Beauty Bazaar format, even before the boutique makes its debut in Liverpool this month. Harvey Nichols group concessions and beauty director Daniela Rinaldi says Beauty Bazaar is likely to open in more big cities.

It’s not all about the headline schemes. Although John Lewis managing director Andy Street says the number of stores required to service a national market has gone down dramatically – his view being that just 70 stores can now cover the whole country – he also mooted that a different model might benefit smaller schemes.

“We will open far fewer full-line John Lewis department stores than we had envisaged,” he admits. Instead, the group is also opening two smaller format stores of  75,350 sq ft stores, which will be supported by online capabilities. The first, in Exeter, opened last month, with York to follow. However, Street stresses: “New developments looking for a John Lewis often needed significant scale to accommodate giving away such a huge chunk of space. By downsizing anchor stores, the developer potentially faces a less onerous task to size a proposed scheme appropriately.”

It was John Lewis that effectively pulled the plug late last year on a large-scale redevelopment plan in Preston aimed at establishing it as the Northwest’s third city. John Lewis Partnership had agreed to anchor Lend Lease’s Tithebarn project four years ago as the core element of the 1.6 million sq ft shopping, leisure and housing project, which would have led to 32 acres of Preston city centre being reshaped and rebuilt, but decided to withdraw in late 2011.

Similarly, long-term development plans for Chester remain in incubation, with the original large-scale project on ice, while Newport and Bradford are among those to have gone back to the drawing board to be “right-sized” for the current climate.

The moribund development pipeline has undoubtedly hampered retailers. Adrian Trotter, regional estates manager at Next, points to uncertainty of store deliverability as his biggest problem. He says: “One of the major problems is when you anticipate a store opening but then you find it has drifted. You have to be innovative to satisfy the space requirement. The uncertainty of deliverability can be very frustrating.”

James Gilhooley, head of property at Waitrose, observes: “Waitrose looks for 10 stores every year. It’s frustrating waiting for [suitable properties] to come through.”

There are also some retailers opening stores nationally, including Aldi – with plans for 40 more – Kiddicare, which recently opened the first of its 10 former Best Buy sites in Nottingham, and Boux Avenue. Owner Theo Paphitis says Boux Avenue has already been “extremely well received” in Glasgow city centre, and is now expanding in Scotland, poised to open its first out-of-town store there in the Silverburn shopping centre. However, the scale of such growth will make little more than a dent in overall availability.

Dividing opinion

If the UK’s smaller cities and towns are to revive their retail aspirations, there seems little doubt that their cloth will have to be cut accordingly, and plans for Shrewsbury, Dorchester, Stoke and a likely scheme for Oxford suggest all is not lost beyond London. The previously stalled Leeds schemes by Land Securities and Hammerson are also going ahead, but Leeds again breaks out of simple geographical definitions, as it is a primary location and is arguably under-retailed. Once the schemes for Trinity Leeds and Eastgate Quarters are completed, all of the big UK conurbations will have a modern shopping heart.

“The regional divide is really an employment divide,” reflects Ian Cody, director of asset management at Hermes. “In a moribund market the one major positive change has been the fall in mortgage rates, which means if you are employed then your disposable income has been preserved. That has protected the high employment areas, particularly the Southeast.”

As a consequence Cody believes retailers have become far more selective about where they will open and that landlords must provide “research-driven” cases to retailers if they are going to entice them into a scheme.

“You can no longer rely on the halo effect of bringing in a big retailer,” he stresses. “Each scheme must stand on its own merits, which is why you are still seeing development in a city like Leeds. And retailers now are even more determined to get into the right projects, in the right locations, and they will pay to ensure they get what they need.”