CHANGING CITY LANDSCAPES
By the time 2008 is over, many of the UK’s prime urban landscapes will have changed significantly. A series of city-centre projects are all reaching completion, including ones in Liverpool, Belfast, Cambridge, Bristol and London.
These developments will transform their respective cities, but they will also create a greater divide between the primary retail sites in the centres and the secondary out-of-town spots. The opening of key city-centre schemes has undoubtedly caused resentment and hardship in the past for retailers in secondary locations, but it has not always proved to be the detrimental force that many feared. In fact, the addition of a sizeable shopping centre can strengthen the status of a city and make the existing retailers up their game in order to survive.
One of the year’s most significant developments will be Westfield’s White City in west London. The news of its imminent arrival has been met with a degree of unease by retailers based both in the West End and across west London, which fear an exodus of customers to the new competition. But the reality may be far from this bleak outlook. As in the case of Birmingham’s Bullring, the long-term effects of the addition of a big fish to the pond could just as easily be a bonus. White City’s main competitors will be the West End and Oxford Street, the latter being in need of improvement in some parts. The added level of competition may well prove to be the catalyst needed for change in the existing London retail centres.
In the short term, the arrival of huge shopping centres to several of the UK’s city centres is likely to cause unease and even closures, but experts are urging retailers to endure the initial period of added competition and embrace the long-term benefits they can bring.
SUSTAINABILITY
As the green movement gathers momentum, retailers are continuing to be thrust into the limelight. Shoppers are becoming increasingly savvy about eco-issues and are asking the big questions of retailers, which in turn are asking questions of their landlords.
Change is likely because of a number of factors, one of the most notable being the imminent introduction of Energy Performance Certificates (EPCs). These certificates will be required on all buildings being built, leased or sold and will allow retailers to assess the environmental impact and energy-saving implications that any units they are considering will have. EPCs are due to be brought into effect on commercial buildings by April and will rate properties on their energy efficiency. The responsibility for providing EPCs will rest with the developers and subsequent owners of a shopping centre and retailers can expect to see certificates free of charge.
Achieving greater sustainability is a challenge facing both retailers and the Government, but it is the former that have made the greater impact, according to EC Harris head of UK retail Catherine Tobiasinsky. She says: “People expect the Government to, but in fact it is the retailers that are taking the lead. The Government has not picked up on the sea-change of public opinion and, therefore, it is not showing the necessary leadership and speed of response. Retailers have seen the opportunity to grab this space and win consumer confidence.”
END OF EMPTY PROPERTY RATE RELIEF
Landlords are bracing themselves for a shake-up in April that is likely to have a big impact on the retail industry. A change in the empty property rate relief laws will mean that landlords will be forced to pay full rates on any properties that they cannot find occupiers for after three months. At present, landlords are granted a degree of relief, paying only 50 per cent after three months.
The shockwaves from this move will ripple through the retail sector. As a direct consequence of rising rate bills for landlords, retailers fear landlords will try to up increases in rents and service charges. Landlords are likely to go to far greater lengths to avoid leaving any of their properties vacant, so will be less particular about what tenants they give leases to.
The implications of the end of empty property rate relief could be crippling, according to property consultancy Hartnell Taylor Cook. Martin Devenport, rating partner at the consultancy, says: “The Government seems to think that developers and occupiers keep buildings empty out of choice. But the market is getting tougher and developments are more likely than ever to have empty units. They are being penalised for something that is most likely out of their control.”
Landlords will still benefit from paying no rates for the first three months but, to many, the doubling of rate payments after that period will mean huge increases to their bills. Retailers – particularly those based in shopping centres – will have to endure an increase in the number of temporary stores, which have been a bone of contention in the past, as landlords seek to fill vacant units by any means available.
BETTER LEASES
The challenging conditions of the past 12 months have altered the landlord-tenant landscape. A number of factors have led to retailers finding themselves more in the driving seat than before, with landlords being forced to become more accommodating of their tenants’ needs. This shift in power has been caused by a tough year and, with the prospects for 2008 looking equally gloomy, it is likely to continue to affect retail property.
The Occupier Satisfaction Index, published in 2007 by Kingsley Lipsey Morgan and IPD, scored occupiers on how happy they were with their landlords and the way in which their lease had been handled. The results revealed that, of all tenants of commercial property, small retailers were the least satisfied with their leases and their relationship with their landlord, while large retailers scored slightly above average.
The revised Code for Leasing Business Premises, published in 2007, is likely to play a key role in changing this relationship. This recommends that landlords approach leases with a more flexible attitude, accommodating for the wider range of occupier requirements than the present system recognises.
British Retail Consortium property policy executive Paul Browne believes the balance is finally tipping in favour of retailers as a result of the new code, but also the economic climate. He says: “Some of the more enlightened landlords realise that retailers are their customers. Retailing is a very customer-focused business. Where there’s friction is when we feel that landlords don’t really care about our feelings. Most occupiers are pretty unhappy about the levels of service offered.”
THE INTERNET
Retailing on the internet has been compared to having an extra store on Oxford Street. As online shopping grows in popularity, it may logical that retailers will be packing up their stores and cutting down on their top two overheads, property and wages. But while it is safe to assume that we can expect some store closures in 2008, it is not such a straightforward formula.
Home Retail Group, which owns Argos and Homebase, has seen a growth in its online customer base. While the internet is a key aspect of its multi-channel strategy and accounts for a large proportion of its overall sales, the company still plans to open a further 30 Argos and 15 Homebase stores in 2008.
Home Retail Group’s approach is indicative of a wider trend of retailers developing multi-channel strategies. As in the cases of Argos and Homebase, the growth of online shopping has actually brought about a new use for physical stores: as a collection point for goods bought over the internet. This multi-channel strategy is key to embracing the vast potential of the internet, and explains why we have not seen a rush to cut down on the huge overheads attached to physical property.
As 2007 came to an end, it was online shopping which emerged as one of the steadiest ships for retailers. With the prospect of a potential downturn in trading for 2008, the internet may throw retailers a line to keep their heads above water, and many are embracing the growing market of online shoppers.
The fact that at Christmas online sales proved to be so robust compared to the high street will mean that when retailers seek to weather any future storms, property is likely to be an area of cut backs, but it will be vital that retailers also maintain their physical presence.
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