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Peter Radford head of retail development, Land Securities Andrew Ogg managing director, Leslie Jones, and past president, BCSC Hugh Radford partner, Donaldsons Peter Courtney director, Lunson Mitchenall |
The UK retail market is viewed as being in a downturn, with empty units appearing in high streets and shopping centres. Is this an accurate perception?
Hugh Radford The significant growth of the powerful high street fashion stores such as New Look, Zara, Next and H&M, together with M&S’s revival, has certainlyhad a positive effect on themiddle-market fashion scene onthe high street.
This is good for the consumer and for those fashion brands which can react quickly to changing fashion, but it has left the more cumbersome UK fashion retailers in their wake.
In turn, however, the UK high street and shopping centre market has seen an emergence of new international brands, not just in the fashion sector.
I see the arrival of Apple, Brooks Brothers, and Inditex’s other brands — Zara Home, Bershka and Pull and Bear — as evidence of this.
Peter Radford The market is certainly competitive, but our experience is that there continues to be encouraging occupier demand for well-located floorspace.
I think this point is illustrated by our letting at Exeter Princesshay, where we are 60% prelet; Bristol City Centre Broadmead, where we are 40%; and Cambridge Christs Lane, where we are 75%.
Peter Courtney While some sectors have all but departed the high street — for example, electricals such as Dixons — these have been replaced by new technology electrical retailers such as Apple.
Music is another sector which has repositioned into smaller footplates, with a demise of the megastore as customers seek alternative media for their purchases, such as the internet.
How are landlords correcting it?
Radford Good landlords recognise change and use these opportunities to refresh the tenant mix and give the consumer new retailers. The retailers who genuinely add something to a tenant mix may well be offered more flexible lease terms. Those which are “parasites” of pedestrian flow will not.
Radford Stock selection is increasingly important, in order to properly understand those locations and those retail formats that are capable of delivering above-average performance.
Courtney The majority of shopping centre landlords are adopting flexibility to both lease terms and their marketing and design. Shorter lease terms, fixed percentage increases are just some of the methods adopted to ensure that shopping centres are kept full and refreshed with new retailers.
How will the UK’s retailmarket fare in 2007?
Radford I think, more of the same. The adjustment in the market has been seen in the past 12 months and I think we are now in a relatively stable position. A lot will depend on sales and margin performance of the retailers.
Radford Given an increasingly competitive market, with deflationary pressure on profit margins, then clearly there is a challenging environment. However, on the upside, the fundamentals of the UK economy — in terms of employment, inflation, interest rates and the housing market — are all positive influences. As such, we think there are grounds for optimism for the right product in the right location.
Courtney The market will remain volatile, with month-on-month changes. Overall, we predict the market will end static or marginally ahead — always assuming that the seasons do not repeat the highly unseasonal weather and temperatures experienced throughout 2006.
How will rents fare?
Courtney We see rents remaining stable overall, with some marginal growth, with rents driven by centres gaining market share at the expense of others. Again, there will be winners and losers.
Radford I don’t think there will be wholesale rental growth across all the retail sectors next year. Much will depend on the quality of the asset and dominance of the offer. If you look at it purely from the consumer’s perspective, and think about the venues that people genuinely want to spend their time in, then that is a pretty good pointer as to where sales are likely to increase.
How will yields fare? Will we see a glut of sell-offs?
Radford No, but the secondary market may experience some pressure.
Courtney For the right product, we see continued healthy demand for sub-5% transactions. The centres must have opportunities to expand with real tenant demand, and will probably be dominant in their location.
Secondary or tertiary centres are experiencing softening yields, and the higher percentage of centres in this sector currently in the market perhaps suggest that 2007 will call the top of the market, as indifferent stock will attract less finance as the banks become nervous of large elements of rental guarantees with uncertain retailer demand.
Who will be the main investors?
Radford The market has been underpinned by a combination of domestic and international investors which continue to seek UK retail opportunities. The UK is a mature market which has demonstrated an ability to deliver sustainable long-term performance.
Courtney The market will continue to see strong demand from private Irish investors, as well as specialists, including Halladale; the institutions, which may not be big players in terms of the number of centres they buy but who will probably account for half-a-dozen centres between them. These include Scottish Widows, Standard Life, Axa, Insite and Land Securities.
Which retailers will be new entrants to the market?
Radford There are likely to be a number of new entrants from both the US and continental Europe although high (relatively) fixed costs may act as a deterrent. In a domestic sense, we believe there will be a growing trend to encourage independent and niche retailers, helping to create variety in tenant and merchandise mix.
Courtney New entrants include Bestsellers, Pilgrim, Abercrombie & Fitch, Wholefoods, Du Paril au Meme, Fruit & Passion, Brooks Brothers, Cortefiel under the Springfield facia, and G Star.
Radford Abercrombie & Fitch opens in March next year. Hoss Homeless is searching for its first UK store.
What countries or regions are they likely to come from?
Courtney Retailers from the USA, Scandinavia, Spain and Italy, rather than France and Germany. Bestsellers, Pilgrim, Bik Bok, Blend, G Star are all from Scandinavia, while the USA continues with Apple, Whole Foods, Brooks Brothers, Abercrombie & Fitch, and from Canada the home fragrance and toiletries brand Fruit & Passion; River Island, H&M for its new as-yet-unnamed concept, New Look. It is likely that Next and Arcadia will also seek to up their expansion plans, in order to maintain their market share and margins.
Radford Interestingly, significant interest is coming from Denmark and Sweden.
On the shopping centre side, will there be more centres built or planned in 2007?
Radford Obviously, there is a significant pipeline, with a large number of centres proposed for development throughout the UK. However, over the past 10 years, the delivery process has become more challenging, particularly at the front end, and this acts a control on the amount of floorspace likely to come to the market in any given year.
Ogg Yes. We continue to receive new instructions, and there area a large number of Local Authorities planning to market further opportunities over the next 12 months.
Courtney There will be no more centres built other than those already under construction and scheduled for opening, but no doubt the market will plan for more space during the next 12 months.
Will we see the design of centres and high streets continue to evolve in 2007?
Ogg The design of centres has evolved significantly to a more integrated approach to the relationship between new retail space and existing high street space within town centres. This process will continue to evolve, as the many pipeline schemes move towards completions over the next three years.
Radford Yes. It is likely that there will be more movement to a mixed-use approach.
Is the streetscape design for centres here to stay?
Radford In a mature retail market, there is potential for a wide variety of different retail formats. However, it is clear that there has been a strong, positive response to the open streets and squares approach that we have developed in Canterbury and which we are currently developing in Exeter Princesshay.
Courtney The streetscape is likely to stay, but regional locations and weather conditions will still influence what is practical and sensible to give shoppers comfort and the best experience. The answer is probably yes, but this does not mean open streets and single level.
Radford I think streetscape definitely has its place, but in the UK we are “blessed” with the diverse seasons, which always poses a challenge to retail design. The trick is to create a weather-friendly environment that allows uninterrupted shopping and relaxing to take place, whatever the weather.
What will be the new thing for 2007?
Radford Given that most convenience merchandise is readily available in out-of-town superstores or via the internet, then successful new developments will have to have an increasingly mixed-use complexion — a complexion that will achieve penetration in a wider catchment area and extend dwell time.
Ogg Greater emphasis on the incorporation of independent quality retailers.
Radford Experience innovation. With competition coming from the internet and from the supermarket groups, it is the consumer experience that needs the most forethought. How this manifests itself in retailers’ own design and retail architecture will vary hugely.
