The garden centre property market is about to bloom. Until now, the UK’s estimated 2,000 garden centres have attracted little interest from the real estate sector. Nice places to spend a lazy Sunday, perhaps – but nothing much more.
But consolidation among garden centre operators and a small but significant shift toward leasehold arrangements are opening the sector to property interest. The fact that many garden centres enjoy prominent town-fringe sites, often with open A1 retail consent, adds to their redevelopment appeal – and some sites are already changing hands.
The big supermarkets have been quick to spot the potential synergies with garden centres. Tesco controls the growing Dobbies garden centre chain, while other operators are exploring links with Waitrose. Co-locating supermarkets and garden centres – or selling a garden centre site to a supermarket operator – are increasingly common asset management strategies (see panel, below).
“It’s a budding market,” puns Allen Evans, director at Gilbert Evans, one of the tiny handful of property consultants to specialise in the garden sector.
“Garden centres are now on investors’ radar – we are having people come to us and ask us to explain the market. And as we get more leaseholds in the sector, so we will see more investor interest.”
Today, the sale of garden centres is still relatively rare. Owners often think like the farmers many of them once were – and that means freehold disposals are rare, except where death, divorce or debt forces a sale. Many of the deals that are agreed are sale and leaseback – which, of course, increases the proportion of leases in the garden centre world, albeit very slowly.
“We see between six and 12 centres change hands a year – and sometimes a small portfolio,” says Evans. “And some leases, like the Blue Diamond arrangement at the Redfields garden centre in Fleet, Hampshire.”
Iain Wylie, chairman of the Garden Centres Association, says: “Some operators, like Guernsey-based Blue Diamond, increasingly prefer leasehold arrangements, but leasehold is still a minority. Most garden centres are freeholds that developed from horticultural holdings and are now in their second or third generation of family ownership.”
The largest single-site garden centre deal for many years was agreed in 2013 when Blue Diamond acquired the Grosvenor garden centre on a 35-year lease. Since then, a number of other operators have looked to leasehold as a route to rapid, low-capital expansion.
Recent portfolio acquisitions include Wyevale’s 2013 purchase of seven centres from Louis Delhaize. This included the Percy Thrower site at Shrewsbury, which is now being developed in association with Waitrose (see panel).
In September this year, Wyevale pressed on with its policy of growth through acquisition by buying the 70,000 sq ft Moreton Park garden centre in Chirk, Wales, from Shropshire Leisure Group.
Wyevale, under the name of the Garden Centre Group, was itself sold last year to private equity house Terra Firma. If rumour is right, Terra Firma is now considering an exit through sale or flotation. Some sources value the business at £700m.
According to Allen Evans, when a garden centre changes hands, site value is rarely a big consideration. “Pricing is turnover-related, not property-related, and what appeals to buyers is the potential to improve turnover,” he says.
However, Evans says the expanding garden centre groups regularly review their portfolio to assess alternative uses for prominent sites.
“There is no doubt the big groups go through this exercise, but the opportunities for redevelopment will be fairly limited,“ he adds.
Brand new garden centre development is rare. The only major player with a development programme is Dobbies, whose expansion is linked to parent Tesco. The first joint Tesco-Dobbies centre was in King’s Lynn and a second opened in Cambridge in October 2014.
The new Dobbies follows a major revamp of the neighbouring Tesco store, including the addition of a number of new departments and services. Another of Tesco’s suite of semi-detached businesses, coffee chain Harris+Hoole, will be on the same site.
Tesco Bar Hill manager Owen Davies says the synergies are powerful. “I think customers are going to really love the combination of our refreshed Tesco store and the new Dobbies,” he says.
Market commentators agree. “Dobbies has growth potential,” says Evans. “This could be a template for the way forward.”
The garden centre market is still growing. The plants-and-gardens offer – once the core of its customer appeal – is now being eclipsed by catering and homewares as major all-year-round earners. Soon garden centres could be earning for the property industry, too.
Still a young market
Iain Wylie, chairman of the Garden Centres Association, says: “Garden centres are still a relatively young market sector, and it is still a diversified and disparate mix. We don’t have a handful of big players, like the supermarket sector, although we are seeing consolidation.”
The two biggest operators are the Garden Centre Group, recently rebranded as Wyevale, which has more than 140 centres. Dobbies come next with more than 30. Other names include Blue Diamond, Klondike and Notcutts. Together, the chains account for about 10% of the market.
The supermarket connection
Tesco is not the only supermarket chain with a growing interest in garden centres. Waitrose is moving in on the sector through partners.
The small Van Hage garden centre chain has teamed up with Waitrose to redevelop the garden centre at Great Amwell, Hertfordshire – and provide a new 25,000 sq ft Waitrose next door.
Wyevale is also in partnership with Waitrose at the former Percy Thrower garden centre site in Shrewsbury. Work on site began this summer to create a 68,000 sq ft covered retail area, and a Waitrose will be built next door. The new centre is expected to open in 2015.
Iain Wylie of the Garden Centres Association says: “Garden centre owners have always been thinking about redeveloping their sites – I can think of examples involving Sainsbury’s from 25 years ago.”
The trouble with gardens
Garden centres usually range from 4,000 sq ft to 70,000 sq ft of covered retail area, although most are around 15,000 sq ft. Plots range from one acre up to 10 acres.
Turnover is typically about £2m a year, and the profit margin – about 15% – is relatively generous.
The trouble with garden centres is not the business model, which is successful, but Britain’s love-hate relationship with gardens and the unpredictable weather.
One-third of the UK’s 20m front gardens have been concreted or paved over – and the proportion is even higher in London. UK-wide, the number of homes with no garden at all is rising from about 2m to nearly 3m, reducing the pool of potential customers.
Meanwhile, wet summers – 2012 was disastrous – do nothing for trade. Summer 2014 saw kind weather for garden centres, and sales were up in all sectors, especially in clothing, which rose by 26%.
