Ambitious project Plans for a major retail development in Hereford could end up being shelved. Melanie Smith reports
Developer Stanhope and regeneration body Edgar Street Grid Herefordshire have big plans for Hereford’s retail market, but there are high hurdles to jump if they want to preventthe sitebecominga temporary car park.
ESGH was set up by Herefordshire council and regional development agency Advantage West Midlands to steer the city centre’s100-acre regeneration scheme, which will bethe largest development in the city for a millennium(see panel).
Stanhope is expected to sign a development agreement imminentlyto deliver the 382,000 sq ft Retail Quarter, which makes up part of the regeneration scheme.
It is planningto open some of the shops by Christmas 2012.To meet this ambitious target, a planning application must be submitted next year and construction must start in 2011. This leavesjust 18 months to securefunding and prelets,relocatethe cattle market and prepare the site for development.
Naturally, questions are being asked about how all this can be pulled off at a time when the property market is suffering its worst collapse for decades.Market conditions have already forced Stanhopeto rethink,and the project will now be delivered intwo 191,000 sq ft phases, the first of which is pegged to the 2012 opening date.
It will bean expensive project. Thecouncil will need to fund the relocation of the cattle market at a cost thathas reportedly increasedfrom £5m to £8m,and flood prevention works will cost £3.5m.TheESGH refuses to disclose the cost of building the link road. The council could not be reached for comment.
Cash injection
Then there is the cost of the development and securing sufficient funds. Alistair Shaw, director at Pendower Developments, which is managing the project for Stanhope, saysthat it will be difficult.
He says that the project will need an overall cash injection of £100m and it is likely that institutional funds will be approached, rather than banks. He admits that these funds will be looking for signs of an upturn before investing.
“The scheme doesn’t become viable without a hardening of yields, and institutional funds will need to see this in order to justify the investment,” he says.
Phase one of the scheme will also need to be 50% prelet in order to attract forward-funding.
Jon Turner,director atlocal agent Turner & Co,says that preletting almost 100,000 sq ft is “wildly optimistic”, given market conditions. “When the market was booming, demand for this space was plainly apparent, but there isn’t the demand for it now,” he says.
The proof of this, he believes, lies in the number of vacant shops in the city centre. According to Experian, business administrations will push the vacancy rate in Hereford up from 12% now to14% by the end of the year, well above the 11.5% national average.
The most recent deals in the city centre were signed last year.Sony Centretook 1,350 sq ft on Broad Street and H&M and Zavvitook two of three redeveloped 4,000 sq ft units in Commercial Street.
Zavvi has sincegone into administration, leaving the unit vacant, and the third unit next door has been on the market for three years. “Speculation that there will be new retail space on the cattle market is blocking tenants from taking existing space in the town, so if the timescale is pushed back further, it will be detrimentalto the city,” says Turner.
Flood relief
Those behind the development remain optimistic. ESGH chief executive Jonathan Bretherton says that the funds to relocate the cattle market are in place, while funding for the link road and flood relief programme will be provided by both Advantage West Midlands and the Homes and Communities Agency.
He adds that he is “confident” about Stanhope securing funding.
Nick Young, retail partner at Strutt & Parker and agent on the scheme, is also unfazed. He says that the team is in talks with anchor tenants, including a supermarket and cinema operator, to take 30,000 sq ft and 25,000 sq ft, respectively. At this stage, names could not be released.
While it is known that TK Maxx wants to double its space in the city centre from 15,000 sq ft to 30,000 sq ft, and Next wants to upgrade from 20,000 sq ft to 35,000 sq ft, none of the parties involved would say if these requirements were being cultivated.
According to Bretherton, existing city centre shops are too small and poorly configured to satisfy market requirements.
The council recently refused Next planning permission to develop a larger building at the former B&Q site on Holmer Road, which is outside of the city centre.
Shaw believes that the Retail Quarter will benefit the city centre’s retail offer by attracting more shoppers into the city and away from the out-of-town market.
Stanhope and ESGH are determined that their project will be a success, despite the dire economic conditions. But Bretherton admits there is a – much less glamorous – plan B in place if the market takes longer than hoped to recover. “We’ll use the old cattle market as a surface area carpark,” he says.
Market at a glance
Retail
Retail rents have fallen from £120 per sq ft in 2008 to £100 per sq ft
Offices
2009 take-up August: 890 sq ft. 2008 total take up: 22,780 sq ft
Availability to August: 31,750 sq ft
Industrial
2009 take-up to August: 38,890 sq ft. 2008 total take up: 119,960 sq ft
Availability: 508,860 sq ft
City regeneration
Edgar Street Grid Herefordshire is proposing a number of projects as part of its 100-acre masterplan. It will include:
