No pain no gain

With out of town retailers being hit harder than most by the squeeze on big-ticket consumer spending, it has been a difficult few years for the retail warehouse market.

And while its the furniture and DIY retailers that have been hit hardest, Henderson Global Investors director of property retail warehousing Andrew Friend says that whether you consider bulky or Open A1 retail parks, there are still plenty of older units available as a result of corporate failures or planned retrenchments.

It’s a view that might seem to confirm the widely held perception that retail parks have been under the cosh, with large numbers of voids in many schemes.

And up to a point this would be correct. But only, as Friend observes, in reference to specific locations and even there, things may not be all bad. “Debenhams, Next and New Look are all looking for new space, but only in primary parks. In secondary space, things are much more difficult,” he says. So what is the state of play in the UK’s retail parks and are there signs that things are on the up?

One of the more obvious indicators of a market on the turn is when new entrants start to appear. It’s worth noting, therefore, that Irish toy retailer Smyths made its UK debut in July when it opened a store in Chadwell Heath, near Romford, followed by another branch in Mitcham, south London. A further shed is set to welcome customers in Borehamwood, on London’s northern fringes, this autumn.

The Chadwell Heath outlet sits on a retail park set back from the A118 and is sandwiched between a Staples and a branch of Halfords. It is a low-key market entry and is located on what many might consider secondary space, but the store has caught the attention of local shoppers. It also bears an uncanny resemblance to almost any Toys R Us unit and is therefore capable of straddling the bulky/open A1 divide.

The Smyths store that opened in Mitcham was a former B&Q and looks to have been a deal-based bit of opportunism, because the unit had been vacant for some time. But as such opportunities become thinner on the ground, it seems reasonable to expect to see Smyths appearing in more retail parks across the UK.

Another debutante is Home Store + More, originally an Irish concept with a single store on the Swords Retail Park near Dublin Airport. This is a very densely merchandised homewares format and the right to set up shop in the UK was purchased by Home Retail earlier this year. The 20,000 sq ft (1,860 sq m) store will trade as HomeStores&More when it opens at The Junction Cambridge Close retail park in Aylesbury, Buckinghamshire, later this year.

All of this sounds like the rumblings of a market where overseas retailers are taking a long, hard look at what’s available and then moving in to grab a slice of the retail park action.

But talk to most agents and they will be quick to tell you that these are the only examples of new retailers taking the UK plunge. Savills retail warehousing team director Johnny Rowland says: “I know several leading figures in the market who have gone to [mainland] Europe to try to bring some new retailers here.” Clearly such exploratory missions have not been much more than talk. Harvey Spack Field director Stephen Yarnold says: “A lot of landlords have been in denial about how bad the lettings market has been.”

This is not to say that nothing is happening on retail parks. The message from the agents is that deals are happening, but at a price. Rowland cites Nottingham’s Castle Meadow park where rents were running at about£35 per sq ft (377 per sq m) a couple of years ago. “You would probably be lucky to do a deal at£25 per sq ft at the moment,” he says. “But it’s a far rosier picture than it has been over the past 24 months.”

So what is it that is shifting some of the stock that has been on agents’ books? The answer seems to be, as in all matters relating to property, location and a smattering of asset management. Yarnold says: “There’s not much new space coming through on retail parks, it’s mostly rationalisation of old space.” Rowland agrees, pointing to the fact that “people have been putting columns and mezzanines into old stock” as evidence of this kind of remodelling.

Until recently, it has been almost axiomatic among many landlords that you do not re-lease a unit for a lower rent than it previously achieved, because this will erode the net worth of a scheme. Most observers are saying, however, that in the current climate this particular rule is going by the board.

It is also worth considering changes in the retail market and the effect this has been having on retail parks. Friend says that in the bulky goods arena there have, over the past few years, been rather more failures than in other areas. He says that this has meant that some of retail’s more familiar names, including TK Maxx, Next and Asda, have all developed home formats that are being rolled out and that may equate to new occupants for old space.

The picture in both open A1 parks and bulky goods parks is therefore mixed. Landlords and agents agree that there are units that still need to be shifted and the will seems to be there for this to become a reality. That said, it is far from a level playing field. “Once the [older] stock goes, then we will see a period of consolidation of rental values and then, probably, we will see them improve in the next six to 12 months,” says Rowland. “Towns that are oversupplied with retail parks will probably still struggle.”

British Land director of retail Andrew Jones says: “Open A1 parks are definitely a better place to be than bulky goods on secondary parks. But this is not to say that all open A1 parks are good or that all bulky good parks are bad. It really is horses for courses.”

He adds that the planning split between the two types of retail park is misleading. A visit to just about any bulky goods park in the UK will quickly establish that there is little, if any, uniformity of approach on the matter. Toys R Us is a case in point, according to Wilkinson Williams partner James Potter, who points out that the retailer sells items both large and small and when it makes an appearance on a scheme with bulky goods consent, it is usually the outcome of a vigorous discussion with the planners.

Jones adds that, in an increasingly complex market, retailers may consider other factors, such as smaller units or mezzanines, and that those in a position to provide them will win the day. For all but the lucky few, retail park landlords look set to be singing for their suppers for some time to come.