Luxury branding: Is Allied London right to aim the retail element of its Spinningfields development at upmarket names?
Allied London chief executive Michael Ingall had a tough decision to make at the end of last year, if local rumour is to be believed. Under blackening economic skies, the brain behind Manchester’s Spinningfields was forced to make a final decision on whether luxury retail was the right way forward for the development.
With the UK’s retail spending power looking iffy, would life’s luxuries be the first extravagance to be ditched by a penny-pinching public, or would the city’s footballers’ wives be enough to keep the shops going?
With the bar and restaurant scene filling out at Spinningfields – including lettings to Carluccio’s and Ha Ha! Bar- and proposals for a five-star luxury hotel, agents are keen to see the retail element move ahead.
One local agent says: “Mike asked himself: ‘Do I go down the easy route and back-fill the development with general, run-of-the-mill retailers and a few convenience stores, or aim for the high-end fashion designer route?’ It’s a big decision, and it dictates the rest of the scheme. If they go down the fashion route, it will be too bland.” Another adds: “If you go down the luxury route, then you are going to have to pay large incentives to justify it.”
Allied London says it remains committed to luxury retail. A signing to Armani in December for an 8,000 sq ft store within the Avenue element has helped to cement its stance.
Another letting for a 6,500 sq ft “major flagship store to an international brand” is in solicitors’ hands, says Spinningfields’ retail agent Nigel Gillingham of Markham Vaughan Gillingham, which is joint agent with GVA Grimley.
“That will give a true flavour of where the development is going – slightly more aspirational,” he says. “There will be 25 stores in that vein, making up a total of 80 shops and restaurants.” He adds that this will be a step up from what is currently best in class in the city.
Higher incentives
So has Ingall made the right decision? The mood among retailers is definitely wintry (see box). Abercrombie & Fitch’s August announcement that it would open a second UK store in Manchester has gone cold.
And according to Richard Lucas, partner at GVA Grimley, as in the rest of the UK, Manchester retailers are pushing for higher incentives. “It wouldn’t be uncommon to get a two-year rent-free package on a new scheme,” he says.
It is believed that part of the Armani package included Allied London taking on the retailer’s King Street store – a tactic it has pioneered with some of Spinningfields’ office occupiers.
“Armani would have been extremely costly to the developer. Spinningfields’ war chest has to be quite big to change the pitch,” says John Agnew, director at Savills’ Manchester office. Pointing to his involvement with deals at Liverpool’s upmarket Met Quarter to Hugo Boss and Armani, Agnew says: “We were close to the existing pitch, but Spinningfields is reasonably detached. I have no doubt that Spinningfields will succeed in changing that end of Manchester, but Allied London has got to change retailers’ perceptions.”
Allied London says it is achieving base rents of £50-£60 per sq ft. Stuart Lyell, development director at the company, will not go into details about incentives other than to say similar packages to those worked up with office occupiers have been created to suit individual retailers.
He adds that the company has not had to increase incentives in the current climate. Apart from a 3,000 sq ft letting to convenience store chain Nisa, the retail strategy remains focused on luxurybranded goods.
“Our philosophy is not to create an insulated fortress, but to integrate. We don’t want to duplicate the outside offer,” he says.
Consumer groups
That is something retail consultant Experian thinks it could be in danger of doing anyway. According to Experian, nearly 56% of Manchester’s catchment falls within the four most affluent consumer groups, equating to more than 440,000 people. This suggests there would be demand for several retail locations that offer luxury goods.
But Experian’s Jonathan de Mello says: “Manchester already has King Street.” He adds: “It depends on the mix Allied London goes for whether it goes for a mix of luxury and upper-middle shops, such as Hobbs and Jigsaw, or whether it is after a scheme full of luxury shops. Then it could turn into another Mailbox.”
This analogy with Birmingham’s upmarket retail centre could be a little too close for comfort. Like Mailbox, Spinningfields will have to convince Manchester’s shoppers that the walk west to its scheme is worth it. This is something that de Mello says the 1.5m sq ft Mailbox has struggled to do.
“The Mailbox is off the main drag, and you can’t just build and expect people to come,” he says. “Manchester has a high volume of potential shoppers, but if it is not convenient to get there, they just won’t go.”
Footfall will be important to Allied London. De Mello says most of the luxury retailers will be on turnover rents, and retailers are increasingly asking for significant thresholds before they have to pay any serious rent.
“This can be up to three years rent-free – depending on the opportunity, and how far off the main drag they are,” he adds.
Luxury retail has been having a bumpy ride in Manchester. King Street, known as the Bond Street of the North, has undoubtedly felt the chill, says Nick McAllester, associate director at Colliers CRE. “At the moment, the retail market is shrouded in caution,” he says. “King Street continues to brace itself for the impact from the retail element of Spinningfields, due to open in 12 months, which itself hasn’t seen the levels of demand it was expecting.”
Watches of Switzerland renewed its lease last year at a rent equating to around £205 per sq ft zone A, says Cushman & Wakefield, and while the historic zone-A tone of the street is £220 per sq ft, it is now considered that the underlying tone is£200-£210 per sq ft.
Allied London undoubtedly has to take the long-term view with Spinningfields, and look past the eye of the economic storm. Only then will it become clear if the developer has made the right decision.
Liverpool clips Manchester’s wings
Manchester city centre has lost its retail crown to Liverpool. Research by Colliers CRE shows that, while Manchester’s zone As have remained static at £300 per sq ft for the past five years, Liverpool has slipped ahead with lettings of £320 per sq ft at Grosvenor’s Liverpool One.
Nick McAllester, head of retail agency at Colliers CRE in Manchester, says: “Generally, it has been the smaller town centres in the region that have seen the healthiest rental growth over the past year, such as Morecambe.”
Peel’s Trafford Centre remains the top-rented shopping centre in the North West for the fifth consecutive year, with zone As of £375 per sq ft.
Rental growth
Some dispute the research, saying that the Benetton unit on Market Street, which the Italian fashion brand has never occupied, achieved £320 per sq ft when Urban Outfitters signed for the space.
However, commentators agree that rental growth is unlikely in the next three to four years as space developed is soaked up by tenants and new retail pitches, including the Arndale extension, settle down.
Here, headline rents are believed to equate to £220 per sq ft zone A, although Andrew Hynes at Cushman & Wakefield says significant incentive packages have been offered to attract retailers.
Market Street rents are also suffering. Historically, rents of more than £300 per sq ft have been achieved, and a deal in 2006 to Swatch achieved £310 per sq ft. However, Cushman & Wakefield reckons the most recent letting on the street, to Barclays Bank, registered just £250 per sq ft zone A.
Retailers are still targeting the city, and McAllester lists fashion brands American Apparel, A-Wear and Cos and hair salon Trevor Sorbie among those trying to get a slice of Manchester shoppers’ £3.2bn annual spend.
Morley is in negotiations with the council to revamp the entrances to its Triangle centre. Recent lettings include fashion retailers Y3 and Aspecto.
Hope that St Ann’s Square can lift its fortunes are high on agents’ wish lists after HSBC signed for the Waterstone’s unit on the square.
Local agents say the footfall could help lift the beleaguered area, although Richard Lucas, a partner at GVA Grimley, says: “It’s not helpful that the former TGI Friday’s unit is sitting there. The square needs to find its identity again.”
Agents struggle to name an operator capable of taking on such a large shop, and Lucas believes it will ultimately be split. Stuart Burdon-Bailey, director of retail and leisure at Jones Lang LaSalle in Manchester, believes the area could become a restaurant hub.
“It would depend on planning, and it would need some of the landlords to take a view,” he says. He adds that retail zone As of £200 per sq ft are a far cry from the£25-£30 per sq ft being achieved for a well-configured unit of 4,000 sq ft on an existing leisure pitch.
