European retailers have been looking at the UK market and making minor inroads into it for several years. But it wasn’t until Swedish fashion chain H&M and Spanish group Inditex started making their mark in the UK that other Continental retailers started to look seriously at the country, and that UK landlords began looking at ways to entice them over here.
“There are a lot of European retailers pushing towards the UK,” says Rupert Cooper, retail agency director at Jones Lang LaSalle. “The question is how to educate them on the market. European retailers really need to know how the UK system works compared with their own, as the UK and Ireland are quite different to the rest of Europe.
“In the UK, we have five-yearly, upward-only rent reviews; in Europe, it is RPI-linked.”
And this appears to be the main barrier to entry into the UK, rather than any prejudice against an unknown quantity on the part of UK landlords.
Ed Humbert, director of central London retail agency at CB Richard Ellis, says that while demand from European retailers is more than evident, there are a number of issues that make them cautious about opening in the UK.
He says that the average UK lease length of 15 years is alien to European retailers, which generally look for breaks at 10 and five years, and that while some landlords are granting breaks at 10 years for newcomers to the country, a five-year break is still virtually unheard of.
“When European retailers first come here, it is a bit of a shock for them because of the total operational costs,” says Russell Loveland, head of leasing at Bluewater owner Lend Lease Retail. “But their projected turnover is significantly higher than in Europe, which is key. It’s all about the percentage between turnover and costs.”
With UK retail in the doldrums and in desperate need of a jolt of excitement, are UK landlords doing anything to help the situation, or are they so stuck in their ways that the Europhobic 15-year lease, with those upward-only rent reviews, is the only term they have to offer?
David Harper, managing director of Harper Dennis Hobbs, says the vast majority of landlords are doing all they can to attract overseas retailers to their schemes. “Landlords are desperately keen to get them here,” he says. “European retailers are very strong at the moment and, since Zara came into the market, it has totally changed people’s point of view on European retailers.”
Loveland agrees. He says that Lend Lease is being more than flexible so as to attract the right new European retailers to its shopping centres.
“At Lend Lease, we are always trying to improve our retail mix,” he says. “We have got to have new European retailers in our assets. We must have the latest and best new retailers. This year, we have done about 10 or 11 deals at Bluewater and, of those, three were European retailers that we have brought into the country. We expect to maintain that ratio going forward.”
Loveland has just signed a deal with Danish accessories chain Pilgrim to take a 600 sq ft store in the Bluewater shopping centre, Greenhithe, while German homewares retailer Butlers already has a shop there.
Churston Heard’s central London retail director, Richard Scott, reckons that Lend Lease has the right attitude. “Large landlords see that the only way they are going to get growth is through decent tenant mix,” he says.
Loveland says Lend Lease is more than happy to offer shorter lease periods to new retailers in a bid to improve its tenant mix, but will only do so if the retailer creates the correct kind of draw for its shopping centres.
“We are very interested in bringing young and new retailers to the country,” he says, “but we cannot expect someone new to come in and trade from the same space for 15 years. That’s just not going to happen.
“The key for us has always been that, for our centres to be successful, we have to provide a good mix, and Europe is a fertile ground for new retailers which can provide that mix.”
For the greatest success in getting a more amenable deal, European retailers are recommended to focus their attention on shopping centres and areas in London that are owned by one landlord, such as the Crown Estate’s Regent Street, Shaftesbury’s Carnaby Street and the Cadogan Estate’s King’s Road.
As the Queen’s property company, The Crown Estate should be the most traditional of landlords. But, on Regent Street at least, it has been one of the most prolific in getting new retailers into the UK.
Its strategy calls for unique retailers only. That actively excludes retailers that are already on nearby Oxford Street and has led to the Crown Estate securing, among others, the UK flagship for über-trendy Apple computers and for German women’s fashion house Gerry Weber — which spent four years searching for the right store.
Alongside The Crown Estate, Shaftesbury, the Cadogan Estate, Hammerson and Capital Shopping Centres are all well known for their positive attitudes towards European retailers. Hammerson even launched a special starter pack for European retailers in a bid to get more of them in the UK and into its schemes.
The Cadogan is also rumoured to be offering 10-year leases with RPI‑linked annual increases for the correct newcomer.
While the UK’s high rents, ever-increasing rates and long lease lengths do cause problems for incoming European retailers, and are certainly not going to disappear overnight, most landlords are far from prejudiced against new and undiscovered tenant groups.
Landlords are still unwilling to drop rents, but flexible leases are creeping in and they are trying to be as welcoming as possible.
And while the landlords try to do their part, CBRE’s Humbert offers some sound advice to incoming retailers. “At the end of the day it’s all about point of difference,” he says. “That’s of just as much interest to landlords as covenant. If you can offer an innovative and interesting style of shop and are not planning to roll out 10 stores in London alone, then landlords will be interested in attracting you to their store.”
