High expectations: Developer Centros is not fazed by speculation that its Arc shopping centre in Bury St Edmunds, which opens this week, will face a rocky market. Nadia Elghamry reports
This week, Centros, the backer of Arc shopping centre in Bury St Edmunds, will be blowing up balloons. PRs will be lining up goodie bags, and shopfronts will be getting their final polish.
The celebrations mark the launch of the 250,000 sq ft shopping centre – being trumpeted by its backers as the only brand-new shopping space opening in the UK this year. But many onlookers have been wondering why Centros is so cheery. With the retail market in tatters, will the air slowly leak out of the Arc’s balloons?
Experian says the centre will boost retail spend in the town by 10% to £323m. Most of the centre’s large shops have now been let to tenants including New Look and Peacocks. Debenhams will open its only full-range store there this year.
Yet 15 out of 28 shops are empty, although Centros says that 85-90% of floorspace is let. That mirrors sentiment. A survey by marketing agency Toolbox Marketing showed that 76% of shoppers the east of England were “concerned” by the recession, with a quarter planning to change how they shopped.
David Lewis, associate director at Centros, admits the timing is not ideal. In terms of the firm’s development proposals, he says: “We are obviously not where we wanted to be, but we are not panicking. Retailers are paying close attention to the detail, deals are taking a long time and there is a lot of nit-picking on the smaller details.”
However, in some ways Centros’s timing has been spot on as it started preletting three years ago. “Terms across the scheme aren’t that bad, but we’ve had to be reactive to the market and retailers are quoting at us what they are getting elsewhere. We’ve been resisting, but we have seen an increase in the rent-frees and capital contributions that tenants want.”
As Arc is an open-street scheme, the service charge is already low. But zone As, which the Arc had been pushing in the town, have slipped back to levels seen 12-18 months ago and. Lewis is sanguine, however.
“There is a double hit to vacant units, and it is better to have them income producing,” he says. “But we are keeping an eye on the tenant mix as we don’t want to be stuck with tenants we don’t want in the long term on long-term leases.”
James Lankfer, head of retail at Bidwells, says that Centros was lucky because it did a lot of the deals 18 months ago. However, he says: “The worry is in the rest of the town. Old buildings are let in a tight market but, with a new scheme, it will be much harder for them.”
Opening day at the Arc may not be the best indication of its long-term pulling power. Shoppers always flock to a shiny new shopping centre out of curiosity. It is something Grosvenor, the owner of the 450,000 sq ft Grand Arcade in Cambridge, is only too aware of as the centre celebrates its first anniversary this month.
Figures from Experian show that retail expenditure in Cambridge rose 6% in 2008 (see graph), boosted by the scheme’s opening. According to retail consultancy CACI, the scheme helped propel Cambridge five places up its rankings last year to number 21, securing an extra £60m of shopper spend. Figures are still being compiled for this year, but CACI’s principal consultant, Nielsen Harrap, does not expect many changes.
However, he qualifies this, saying: “Grand Arcade didn’t open 100% let, and I would be surprised if it managed to fill those units.” Pointing to anchor John Lewis, Harrap adds: “John Lewis is pretty special. It always drives people to a scheme, but even it has been reporting figures that would have been completely unheard of before.”
The centre’s Apple and Topshop stores appear to be trading incredibly well, says Edward Dodson, director at Colliers CRE, although Hugo Boss had “its worst Christmas ever”.
“There have been no closures at Grand Arcade, but Grosvenor is finding it tough. It is charging zone As in the late £200/early £300 per sq ft, but offering two years capital or rent free,” he believes.
Footfall since opening to the beginning of February is 9m, says Grosvenor, and its John Lewis is one of the highest performers in the country. Around 95% of the space is now let. Neil Barber, head of retail leasing at Grosvenor, says: “Our strategy has always focused on getting the right brands in rather than giving space to any applicant. It is working as over half of the retail line-up is new to the city.”
Step outside Grand Arcade, and the retail temperature drops several degrees. Relocations into the centre have hurt Petty Cury, Sussex Street, Trinity Street and towards the Grafton centre, which is undergoing a much-needed £15m facelift.
“Morale is in the dumps, trading is very bad, we’ve seen a lot of closures and Cambridge isn’t known for having vacant shops,” says Dodson.
Shoppers in Norwich are aware of the effect a new shopping centre can have on a city. Chapelfield, Capital Shopping Centre’s 530,000 sq ft retail scheme, opened in September 2005, but the pundits never lauded it. Now wider economic woes are biting.
Adrian Fennell, partner at Roche, says retailers nationally are rebelling against service charges. He says: “Chapelfield is having to look at turnover-only deals, and be much more flexible as vacancy increases.”
Zone A rents at Chapelfield are a closely guarded secret, but Fennell says that, when the scheme opened, it boasted that it would “be primer than Gentlemans Walk” – where rents are around £200 per sq ft. “If there was an open market letting in Chapelfield, it would be substantially less,” he says.
CSC could not be reached for comment.
While the major centres struggle, the smaller towns could rise up the rankings. Fennell says that Ipswich is “holding up well”. Harrap backs this up, saying that the town caters for mass provision, with little premium retail. He adds: “Perhaps there will be an increase in footfall at a local level because shopping is becoming more a list of needs rather than wants.”
Spending in Great Yarmouth also inched forward last year, helped by an extension of Market Gate centre that brought in Debenhams, New Look and Poundland.
Although others might be sniffy about budget name lettings, Fennell points to a recent conversation with regional shopping centre managers. “They were expecting a good Christmas because half their centre’s target audience is unemployed so are not affected by job losses. They still have money to spend.”
Market at a glance
Zone A rents Q4 2008 (comparisons on Q4 2007)
Cambridge £250 per sq ft, down 10.7%
Ipswich £140 per sq ft, down 12.5%
Norwich £200 per sq ft, down 7%
Source: Bidwells
