Retail investors looking at Bedfordshire, Hertfordshire and Essex have increasingly been seeing swans in these tired new towns and are gobbling up assets with scope for expansion and improvement.
Dowdy and tired are not words often uttered by agents keen to recommend an area. But with a series of retail investment deals across the Beds, Herts and Essex region totalling well over £350m in the past year, buyers seem to need no encouragement to scoop up the region’s ugly ducklings. They have bought 1950s shopping centres, yet-to-be-built schemes and retail developments crying out for refurbishment in Luton, Stevenage, Basildon, Biggleswade, Bishop’s Stortford and Harlow.
What is proving to be attractive in this region is the comparative resilience of the retail sector, along with the scope for redevelopment in towns that have often had little done to them since they were built in the 1950s and 1960s. Giles Cooper, director of retail capital markets at Jones Lang LaSalle, says: “The new towns are quite dowdy, but they are attracting investors. The retail centres are, surprisingly, nearly fully occupied. Even in the more secondary areas, landlords have managed to maintain occupancy, if not rents.”
Attracting attention
Anything with an angle is attracting attention. “Anything that still has an asset management plan, that has scope to improve the asset brick-by-brick or to extend the boundaries and add more retail interest is going to be one to attract investors,” says Andre James, head of national investment at Colliers International.
Delamere Estates’ and National Grid Pension Fund’s success at Southend-on-Sea has shown the scope for growth in the region. Their £25m refurbishment of the Victoria Shopping Centre was completed in 2008, as the recession began, but the scheme has bucked the national trend, with footfall in February up 10.4% year-on-year, although it has dropped back since. Bill Harkness, chief executive of Delamere Estates, says: “The reason we bought the scheme was that Southend has always underperformed. It is fighting below its weight. There is loads of money there, a fantastically rich catchment that was not being exploited, and that is because the offer was not there.”
So too in Biggleswade in Bedfordshire, where the Jersey-based closed-end investment trust LXB acquired the Biggleswade Retail Investment Park from Nottingham county council pension fund and another retail unit from Xerox Pensions. The purchase completed a £41m jigsaw of acquisitions to create a 15-acre redevelopment site alongside the A1.
LXB is in talks with mid-Bedfordshire council about plans to aggregate and extend the existing 295,000 sq ft of retail space into a large retail scheme on the site. For LXB, the site, it says, has the benefit of a “substantial catchment population and excellent transport links”.
Stronger trend
Part of the region’s attraction is simply that it is in the South East, where many investors have always felt more comfortable. But uncertainty remains about both rents and yields, and not everyone is willing to place bets on the region’s stronger trend continuing.
Trevor Wood of retail sector analyst Trevor Wood Associates comments: “The South East is slightly stronger at the moment because the economy there is stronger, but whether that’s going to last I wouldn’t like to say.”
Cooper adds: “Because rents have fallen so far and there have been lettings in all these towns, it is difficult to say where rents or yields should be. At the moment, investors are betting on rents going up.”
Rents in Stevenage peaked at £140 per sq ft for Zone A in 2007, whereas recent deals have been done at £75 per sq ft, and yields on recent deals have ranged between 6.25% and more than 9%.
“I don’t think anyone thinks rents are going to get back to £140 per sq ft,” adds Cooper, “but perhaps £75 is a little low.”
Case Study: Victoria Shopping Centre, Southend-on-Sea
Delamere Estates and National Grid Pension Fund acquired what was then known as Victoria Plaza in 2004. The pair have since poured money into the centre finishing a £25m refurbishment, which included a new transport interchange from the Southend Victoria railway station, completed in 2008. All but one of the large retail units in the 335,000 sq ft scheme have been let to tenants including Next, New Look and Boots, although a number of smaller units remain vacant.
The Victoria Shopping Centre is expected to get a further boost next year if Tesco’s plans for a 100,000 sq ft store on an adjoining site are approved, as expected, by the council. The supermarket will link directly into the shopping centre via a covered walkway.
Bill Harkness, Delamere chief executive, says: “When we bought Victoria Plaza it was known as ‘windy city’. It was an outdoor lavatory, it was horrible and it was the first thing you saw when you came into town.
“We spent the money first on getting the look right and attracting the high-end tenants and we produced the big boxes people want, so now they do not have to go to Lakeside or Chelmsford.”
Case Study: British Land
British Land piled even more money into the Bedforshire, Hertfordshire and Essex area when it bought the 19.5-acre Power Court scheme in Luton at the start of the year. It was a substantial increase in the REIT’s local holdings, where it already owns the Hatters Way retail park, the Mayflower Shopping Centre in Basildon, and the Eastgate Shopping Centre, also in Basildon, which it has held for the past 15 years.
Ben Grose, head of retail asset management at British Land, says: “We look for a location that is going to be accessible and where it is going to be dominant in its catchment area.”
Power Court is a scheme intended to regenerate the centre of Luton on a site part owned by Luton council and the Environment Agency. British Land has taken on Ballymore’s 40% share, and has gone back to the drawing board with a scheme rejected by planners, who said the proposals for a 500,000 sq ft shopping centre would detract from the existing retail offer.
British Land is working with Luton borough council to draw up a new scheme, and the council has been making positive noises.
“It’s a town we know very well. We know the retailers well and how they trade. Whatever town we look at, it is always going to be occupier-led and we are very comfortable with Luton,” says Grose. He would not comment on whether British Land had secured an anchor for the Power Court scheme.
The Mayflower Centre, acquired by British Land from Scottish Widows in February, is an opportunity to refurbish an “unloved” scheme in Basildon, a town that has proved rewarding for British Land. The REIT has secured 50,000 sq ft of lettings at the Eastgate Shopping Centre in the past year, and a further 50,000 sq ft of regears and relettings.
“Basildon is the prime out-of-town centre for the region and we have seen a lot of activity there over the past year,” said Grose.
The lettings at Eastgate have included new entrants to the town, including Superdry, Select and Bijou Brigette.
The Deals
• Harvey Centre, Harlow – bought by European Property Investors Special Opportunities and Addington Capital as part of the £145m acquisition of the Sapphire Retail Portfolio.
• Power Court, Luton – acquired by British Land for an undisclosed sum. The completed scheme is expected to be valued at between £200m and £400m.
• Mayflower Shopping Centre, Basildon – acquired by British Land from Scottish Widows Investment Partnership for equivalent of £51m, offering a 6.3% initial yield.
• Biggleswade Retail Park, and separate DIY retail unit in Biggleswade – bought by Jersey-based closed end real estate investment fund LXB for £27m.
• Jackson Square, Bishop’s Stortford – sold to Legal & General for close to £58m, offering 6.25% yield.
• Westgate Shopping Centre, Stevenage – said to be under offer. Asset management company Aviva Investors put the scheme on the market in March, with a price tag of £20.8m, offering a 9% yield.
• The Parade, Stevenage – sold to F&C REIT Asset Management for £24m, offering a yield of 8.25%.
• Southgate House, Basildon – sold to the property developer Helical Retail for £11.1m, offering a yield of 8%.
• Harlow 54,000 sq ft retail scheme – under offer at £9.25m, offering a yield of 9%.
