Market measure Commentators claim the strength and breadth of Glasgow’s catchment will shield it from the worst of the downturn. By Stacey Meadwell
Shopaholic Glasgwegians have fuelled an in-town/out-of-town retail battle in recent years, but there are new conflicts ahead. The city, which enjoys a top-three spot in the UK’s retail rankings, has seen a number of out-of-town schemes open in recent years, all looking to capitalise on its large catchment and high spend, but now the weakening economy is casting a dark cloud over the market.
According to the British Retailers Consortium, October was the fifth consecutive month of falling retail sales. Christmas is expected to be a barometer of just how tight consumer purse strings are being pulled. Now talk is not of “if” but “how long” and how deeply the economy will retract. So, how will Glasgow’s retail market fare?
Out-of-town locations have dominated retail development, with Combined Property Services’ 1m sq ft Silverburn in Pollok the most recent addition. After celebrating its first birthday last month, it is on the cusp of being fully let.
“Silverburn is a big scheme on pretty ambitious rents, and it has done a very good job,” says Frank Montgomery, director of retail and leisure at Atisreal in Glasgow. “There is difficulty coming out of the car park sometimes, which suggests it’s doing well.”
This out-of-town activity has stirred landlords in the city centre, and two extension proposals have emerged.
Work on the 750,000 sq ft 1980s St Enoch Centre is under way, and space will be reconfigured to create a new entrance and 100,000 sq ft of additional space.
Owner Ivanhoe Cambridge is looking to upgrade the centre’s offer. Market rumours suggest that H&M is in talks to take 32,000 sq ft, and Tesco Metro has space under offer.
Completion is due in August next year, and in some respects the timing could not be worse. Agent John Menzies, partner at Cushman & Wakefield, says: “Retailers are negotiating harder and looking for better and better deals.”
Nonetheless, he is hoping to push up rents from the previous high of £120 per sq ft to £170 per sq ft. “I’m not saying we would get a premium deal here at St Enoch, but we are on the doorstep of Buchanan Street,” says Menzies.
However, he believes Glasgow is attractive enough to ensure that a prime unit on Buchanan Street would still achieve a premium, “and there are very few shopping streets in Scotland you can say that about”.
But while work on St Enoch is under way, there is speculation about the progress of Henderson Global Investors’ and Land Securities’ plans for a 700,000 sq ft extension to the John Lewis-anchored Buchanan Galleries, which opened in 1999.
The Scottish parliament confirmed Glasgow council’s decision to approve outline planning at the end of last month, and Marks & Spencer has now agreed terms to anchor the extension. The high street stalwart already has two stores in the city, on Sauchiehall Street and Argyll Street, although most in the market believe it will relinquish Sauchiehall.
“There is a lot of PR coming out of Buchanan Galleries, and the developers are keeping the market warm. I will be surprised if they start on schedule, and timings will most definitely slip,” believes Tom Johnston, head of retail in Scotland at Colliers CRE. Vue is the subject of the most recent press releases, having agreed terms for a 10-screen cinema.
Smaller lettings
But while shoppers have been hit in their pockets, developers have been, too. LandSec saw its NAV fall 20% in the six months to September.
Nick Davies, development manager at LandSec, says next year it will be looking to do the smaller lettings to get to a “threshold of prelets”. He would not be drawn on what the percentage of prelets would be before starting construction, only saying he was confident of achieving it, and insists “funding is available” for the development.
Davies says delivery of the scheme remains “on schedule” for 2013, which is “a good time to be delivering”, but agents are not convinced, and most say they would not be surprised if it was 2014. Delivery is dependent on securing enough retailers, presumably to satisfy the accountants.
There is understandable nervousness in the market. It is a tenants’ market and, so far, rents are holding up, but how long retailers will be satisfied with incentives is tied to how long the recession lasts, and to market confidence.
Comfort is being drawn from the fact that Glasgow has a big catchment and a varied retail offer, which should help shield it from the worst.
Facelift planned for Princes Square
Redeveco, new owner of Princes Square shopping centre in central Glasgow (pictured above), is planning a £6m facelift. An application is due to be submitted early next year as part of a strategy to position the centre at the higher end of the retail hierarchy.
Vivienne Westwood opened a store in the centre at the end of the summer on a rent of £50,000 pa, and Kurt Geiger opened last week.
Ted Baker, Space NK and French Connection all have lease renewals, and David Smith, Redevco’s portfolio director, is keen to keep them in the centre.
He says: “Princes Square is now worth less than when we bought it [December 2007], but we are long-term holders. We’d like to get the right tenants in the units we’ve got available, rather than just fill the void, and we don’t want to dilute the offer that the centre has got.”
