Retail Property Briefing 21

CHASE & PARTNERS Retail & Leisure Property Specialists c&p December 05 Market Overview

Last year, movement in the retail property The high street has also seen its fair share If the government’s proposals to tax Bank of England figures show that lending The fortunes of the occupiers are of market was difficult to predict. As we of business failures. This market, however, development gain do make the statute on real estate now stands at £134.9bn. course the crucial element in retail anticipated, this year has seen both has a much larger pool of potential books this will act as a brake on future The annual growth rate of this debt property. There is no doubt that trading fragility in the occupational market occupiers and a greater diversity of development. is 19.1% - a very significant extension. is going to be much tougher over the coming to the fore, and the continuing demand (especially for prime space) than Increases in property values, nevertheless, next 12 months with price deflation, strength of the investment market that the retail warehouse sector. As such, it Although some observers of statistics would appear to provide for a sustainable squeezed margins and ever increasing has seen yields make further falls. has held up remarkably well in the face of suggest that institutional investors are ratio of debt to value. It is quite clear, competition from the internet. This will harsher trading conditions. Furthermore, buying less, our experience on the however, how important property is encourage more diverse and flexible This fragility in the occupational market recent rental growth in the high street has ground is the opposite. Requirements in supporting the UK economy. Debt letting strategies. The result will be that can be attributed to a wide number of been more measured than for some parts remain unsatisfied as higher weightings in in this sector is 2.5 times that to the lease lengths will continue to reduce, general economic factors. The housing of the retail warehouse sector. This makes property are maintained. In this respect, manufacturing sector, and 40 times that incentives are likely to increase, and some market, for example, has weakened and market conditions in the high street there has been a structural change in to the UK service sector. Interestingly, the age-old criteria such as upward-only rent indications are that consumers have somewhat less prone to volatility than for investment attitudes that are likely to be annual growth in debt to the construction reviews will be under increasing scrutiny begun to feel more cautious. Adverse retail warehousing. here for some time to come. industry at 19.5% is the same as for real and market pressure. Land Securities’ media reports on domestic debt, now estate, even though the total debt in this flexible leasing approach will be worth amounting to over £1 trillion, is perhaps A note of caution when considering Retail property, according to the latest sector is £20.3bn. watching closely over the next 12 months causing consumers to think twice about the true state of retail sales: some annual IPD Index has shown strong and beyond. further spending and start reducing recent press comment has indicated returns. At 16.6% for the past 3 years household debt. dissatisfaction with the manner of and 12.3% over the past 5 years, these calculation of sales figures. The current outstrip all other property sectors. The retail warehouse market offers system is still based on an approach first The latest monthly IPD Index, however, the greatest contradictions. During the adopted prior to the second world war, demonstrates the improving returns of Graham Chase FRICS FCI Arb FInstCPD year, falling consumer confidence and and may not be reflective of the true equities against property (17.50% for expenditure fed through into tangible position. property and 19.80% of the FTSE All failures. A number of furniture multiple Share Index). This perhaps represents retailers called in the administrators or After ten years, internet retailing is having a natural cycle. In any event, the were put into receivership. This wake up an impact on high street sales - a trend importance of property as part of an call was followed by falling sales volumes that is likely to continue. institutional balanced investment policy is and profits in the DIY and electrical unlikely to be shaken off. sectors at B&Q and Currys / PC World. Recent concerns over the extent of new development appear over-emphasised. Property companies are not, however, Despite difficult trading conditions for The flow of new space is at a steady pace being left behind. The likes of Land the occupiers, investors have continued and in most cases represents long awaited Securities, Hammersons and British Land to purchase retail warehouse investments regeneration schemes or redevelopment are finding ever more innovative ways with vigour, producing falling yields and of outdated and tired town centres. of expanding their portfolios. New debt a narrow yield gap between prime and driven vehicles and greater flexibility secondary investments. Recent ‘trophy’ In the retail warehouse market, new allow for joint ventures and large deals at the prime end of the market, developments are a rare event indeed. corporate acquisitions. The general focus together with some concerns over pricing This is the case even for bulky goods that for maximising returns is on having a in the secondary bulky goods sector, require the type of space that only large smaller number of larger investments. indicate that we may see a widening of space developments can offer. Palace Exchange Shopping Centre, Enfield. Lettings, development consultancy the yield gap over the coming 12 months. and investment sale for ING Developments.

1 2

Town planning

Georgina Zammit Jim Morrissey BSc Econ(Hons) Stephen Rose BA(Hons) Dip TP MRTPI

We are now several months into the the broad categories of comparison and higher order centre, providing there is an Returning to the example of Droitwich Criteria new PPS6 era, and already difficulties are convenience goods…”. adequate level of local provision. and Worcester, surveys show that the We still have no comprehensive beginning to emerge in its interpretation. majority of expenditure on fashion items explanation of the concept of retail need. The draft version promised a host of From our experience, assessing the Traditionally, when examining the issue leaks from Droitwich to Worcester, but To our mind, criteria we put forward at “best practice guidelines”, but these have need for further retail floorspace on the of need, practitioners would establish, this is not the case with DIY spend. By a public inquiry at Macclesfield in 1999, yet to emerge, leaving practitioners to basis of expenditure on all comparison through survey work, the extent to analysing the spending habits of goods to and which has been adopted by many cope with a document that is increasingly goods is altogether inadequate. By way which expenditure flows to various be sold within the broad categories of other practitioners as a sensible and viewed as lacking in substance. of example, consider the following: In centres according to the types of goods comparison and convenience, the need comprehensive approach, is as good as most shopping hierarchies, smaller town purchased, e.g. where shoppers go for for different types of provision locally can anything that has been produced. On ‘Need’ centres are dominated by the sub- clothing and fashion items, the main and be evaluated. that occasion we set out that retail need The new policy statement reiterates guid- regional centre, and in this way, think of top up food trips, for DIY goods, for will vary from place to place and from ance contained in earlier ministerial “clari- the likes of Thirsk and or indeed, electrical goods, for furniture and floor If, however, we adhere to government time to time, but its constituent elements fications”, that retail development in edge Droitwich and Worcester. In such smaller coverings, and so on. In this way, the guidance, the fact that expenditure on were likely to be comprised of one or of centre or out of centre locations must towns, it is natural for expenditure on adequacy of local provision will inevitably all comparison goods is leaking from more of the following:- Retail planning consultancy for Hermes. Crystal Peaks be supported by evidence of ‘need’. In certain comparison goods, such as fashion vary, according to the different trips Droitwich to Worcester provides the Shopping Centre, Sheffield. this regard, quantitative need is deemed and luxury items, to flow to the larger planned and the types of goods to be ‘need justification’ for further comparison • the quantitative capacity for the to be weightier than qualitative need. The centre. It does not follow, however, that purchased. goods floorspace, of any description, proposal; former must be demonstrated, whereas expenditure on other comparison goods, in Droitwich. What this means is that the latter can be taken into account. such as DIY products, would flow to a the leaking of expenditure on fashion • meeting a qualitative deficiency in goods to Worcester is used to justify the existing provision (either in overall terms The retail industry is extremely dynamic provision of further DIY floorspace! This or spatially); and we can all identify different legitimate cannot be right and it cannot lead us to a elements of it. In this way, purpose - built sensible shopping provision that reflects • a related absence of harm to interests shopping malls have a different dynamic real local needs. of acknowledged importance; to the high street, which itself differs from retail warehouse parks, which themselves While we can understand the Minister’s • broad compliance with recognised differ from food superstores, which differ wish to avoid over-elaborate need planning objectives e.g. sustainability; from local and district centres, which are calculations, bringing the matter down to different to factory outlet centres, and so such a simplistic level serves no public • meeting the requirements of the local on. interest. Retailing is dynamic and varied community, and the need for any town Planning consultancy for British Steel Pension Fund. Prestige Retail Park, Burnley. and the proper retail needs of any to be competitive with alternative retail Sadly, when practitioners are required town should be assessed at a level of destinations. to demonstrate a quantitative need for sophistication beyond mere comparison further provision, they are instructed to and convenience goods shopping. Conclusion consider only expenditure within the Furthermore, many individual retailers National planning policy guidance on broad categories of comparison and sell both comparison and convenience town centres and retailing has been a convenience goods. Certainly, this is the goods and it is increasingly obvious to moveable feast for the past six years, conclusion to be drawn from analysis of retail planning practitioners that the PPS6 requiring regular clarification. It was appeal precedent, despite the unclear guidance, in this regard, is inadequate for keenly hoped that the new PPS6 would wording of PPS6 (paragraph 2.34) which its intended purpose. put an end to this. That may not, refers to ….“forecast expenditure for however, now be the case. Further specific classes of goods to be sold, within Planning Consultancy on Local Development Framework clarification is required. for Borough Council.

3 4 In-town retail agency

Keith Nelson BSc(Hons) MRICS Mark Paynter BSc MRICS Angus Maclean MRICS Greg Westover BSc MRICS Mark Fitzimmons Claire Ellis

Market Overview The department and variety store sector are introducing new innovative While the amount of new space in the • Littlewoods ceased trading with ABF continues to evolve and we have already leasing packages (“Landflex”), and it is development pipeline is considerable, it taking over the chain and retaining 40 For the first time in a decade we have touched upon the disappearance of the anticipated that others will follow. Is this is notable that, unlike in the late 1980’s, stores for Primark and selling 34 onto seen a marked shift in occupier sentiment. and Littlewoods chains. Dickins the start of the end of upward only rent the schemes proposed are mainly on New Look; Retailers are reporting much more & Jones on ’s Regent Street reviews after a century of leasing on this prime city centre sites. We see these difficult trading conditions with price and Barkers of Kensington are soon to basis? new developments as merely responding • bought the Beatties deflation, falling like-for-like sales and follow suit. In their place retailers such to ever more discerning retailer and department store chain, but announced increasing occupational costs. These as Next, TK Maxx and Primark are taking Development Pipeline shopper requirements based around the future closure of Dickins & Jones are putting much greater pressure on department store sized units. By way shopping as a leisure activity. The on Regent Street London W1, Barkers profit margins than in previous years. of a contrast, some of the department As reported last year, 2005 saw only a developments planned for Bristol and of Kensington and the Beatties store in Despite these tough conditions that have store operators are now looking at much limited number of major new shopping Belfast are good examples of this. They Birmingham; seen more withdrawals of well known smaller formats (for smaller towns), with centre openings. While it is estimated Portfolio acquisition and valuation for Prestbury. comprise the provision of the ‘right’ size high street names from the market House of Fraser and now that some 2 million sq ft of new centres of new accommodation in tired, older • On a positive note, the most active place (notable examples in 2005 being actively seeking 20,000 sq ft. 2005 was will have opened during the year, only retailing centres and reflect a normal player in this market – Debenhams - Littlewoods and Etam) demand for prime also the year that saw the welcome very few have been in excess of 200,000 cycle of replacement and regeneration. opened smaller ‘Desire’ formats in Truro space remains good, and few voids have return to form of Marks & Spencer. sq ft. These have included Chapelfield in We believe this to be a positive factor, and South Shields to match smaller resulted. The retail market’s ability to Norwich, Fremlin Walk in Maidstone and not a negative one as some observers catchment populations. They also acquired evolve and reinvent itself is imbuing it Some traditional ‘out of town’ retailers Westwood Cross in Thanet. have been suggesting. 8 Allders stores and have plans to open with robustness in the face of harshening such as Ikea, frustrated in their expansion a further 23 stores. They also continue economic conditions along the high street. plans by the restrictive planning regime Looking to the next 3 years, 2006 is also Given the scale of the proposed to buck the trend, improving like for like and shortage of new sites out of town, likely to see few major new shopping development pipeline, however, it is sales; As ever, the unpredictable British weather are now looking to the town centres centre openings. Notable exceptions likely that key retailers will continue to continues to compound the challenges such as to help them satisfy will be Palace Exchange in Enfield, Ayr negotiate softer terms on new lettings. • John Lewis plans to add an additional 10 of a difficult market for the high street, new space requirements. Central, Drakes Circus in and With the demise of Littlewoods and outlets from 2007 onwards; especially for the fashion retailers. Late the Heart Shopping Centre in Walton on Allders, anchor store traders (that now • As we commented last year, Stuart summers, short winters and climate Many former listed multiple retail Thames. include the likes of Next, Primark and Rose’s performance at Marks & Spencer changes are challenging the traditional companies are now back under private Grays Shopping Centre, Grays. Letting and asset TK Maxx) enjoy a stronger negotiating management for Halladale plc. has been closely monitored. With an sales seasons. In particular, this year we control with notable examples being The picture from 2007 onwards, position. This may result in the weaker innovative refurbishment programme have had an unseasonably warm autumn. Mosaic Fashion (Baugur) and Arcadia (the however, is very different. Some 4 million schemes being delayed, redesigned and the assistance of Twiggy and a gooey Green Family). sq ft of new centres are planned to or even mothballed, especially if the chocolate pudding, Rose seems to have We have commented over the last 5 open in 2007 in places such as Derby, additional burden of a ‘development successfully brought Marks & Spencer back years on the strong pent up demand As harsher trading conditions take hold, Belfast, Manchester and . 2008 gains tax’ is enacted by this government. ‘into fashion’. It will be interesting to see for large, efficient accommodation by we foresee the inevitable rise in third- will see a further acceleration in new how Bhs and Next respond to Marks & the major fashion brands such as Next, party determinations, as tenants seek scheme openings with some 7 million sq Key Notes Spencer’s resurgence. Arcadia, River Island, Monsoon, H&M to put a cap on establishment costs and ft forecast in the likes of White City, High Department/Variety Stores Hennes, Primark, Debenhams and New landlords strive to create rental growth in Wycombe, , Bristol and Pollock. Expanding Retailers Look. 2005 can be seen as the year when a weakening letting market. • Allders went into receivership during “the hunters secured their quarry”, with Concern has been expressed by some 2005. Tellingly, all of the stores were • Vacancy rates throughout 2005 have the majority of space resulting from the Some landlords are appearing to be in the industry as to whether this level acquired either by retailers seeking remained low in prime locations despite demise of the Littlewoods and Allders more flexible in leasing, with 10 or of development is sustainable given prime representation or landlords reports of overall increases in town centre chains being quickly recycled. 15 year leases now the norm. High Acquisition and valuation of Iceland and Booker sale and the softening of the retail market and looking to redeveop; vacancies. Numerous retailers have taken profile names such as Land Securities leaseback portfolio for Prestbury. weakening general economic conditions. the opportunity to expand into space left

5 6 In-town retail agency (contd)

by those withdrawing from the high launch in Regent Street, Apple has also • Sainsburys are disposing of a number Hampson comments that a dishwasher and in particular Street, it has street; expanded into Bluewater, Brent Cross, of their smaller format stores in prime today costs the same as it did ten years contributed to an already unique set of Bull Ring and the Trafford Centre; and expensive locations, especially in ago; issues that pose threats to the long term • Fashion retail has seen most brands London; prosperity of the shopping environment ‘upsize’ on the traditional offer – Next • The hairdressing sector, while remaining • Chinese clothing imports stalled at here; has moved into department store format predominantly independent, is undergoing • The banking sector continues its port and quota realignment agreement with its 80,000 sq ft offer in Manchester. a period of consolidation with operators gradual withdrawal from the high street reached in crisis talks, reflecting concerns • The impact of the congestion Top Shop, New Look, H&M, River such as Toni & Guy, Regis and Nikita with a number of portfolios coming onto of “dumping”; charge on shopper numbers and the Island, Zara and Mango are all seeking undertaking aggressive expansion plans. the market from Birmingham Midshires, future competition presented by the units of 10,000 sq ft and over in major This is partially due to product sales, HSBC and Halifax. Further disposals are • Other retailers falling into development of massive new shopping catchments; which are increasingly being undertaken forecast over the next few years; administration included Allders, Pilot, centres in the inner suburban London within salons following the continental Betfred Bookmakers. Retail acquisitions throughout Eisenegger, Gadget Shop, Ciro Citterio, area (White City, Elephant & Castle and • Philip Green purchased the 213 outlet model; London M25 area. • Bennetton placed a number of their Granville Technology (Time) and Elephant. Stratford E15) combine to present a Etam chain; larger format stores on the market. Is challenging picture for the future strength • Other noteworthy acquisitive retailers this a warning to other retailers that big Additional Miscellaneous Issues of ; • Monsoon have continued to expand for 2005 include Animal, Ottakars, Bank, is not always beautiful? over the last 12 months and purchased Carphone Warehouse, O2, Game, • Online shopping continues to have a • For Oxford Street and the country as 47 of the Etam stores from Philip Green; Superdrug, Kipling, Qube, Phones 4U, • First Choice, Adams, Stead & Stimpson, growing effect on high street retailing. It a whole, Christmas appears to be even Clintons, Peacocks, , Claire’s Fat Face, Crew Clothing, Brighthouse, is now estimated to account for 6% of more crucial than ever before – will it • New Look purchased 34 of the former Accessories, Faith, Schuh, La Senza, USC, Shoefayre and Going Places have also prove to be a festive New Year? Probably Littlewoods stores from ABF; all retail sales and this figure is forecast Republic, Build a Bear, Early Learning, been rationalising their estates. to increase to 10% over the next 3 not! Jane Norman, Top Shop, Dorothy Perkins, • Value retailers, TK Maxx, TJ Hughes years. As the BCSC conference in Belfast Poundland, Orange, Flight Centre and Other Major News Stories from 2005 and Wilkinsons have continued on highlighted, customer service and the Sportsworld. their push for space. Their presence built environment is becoming even more • Boots announced a merger with in good secondary locations in town important to counter this threat; Disposals Alliance UniChem although this remains centres taking large space units has Nikita hair. Retained agents for programme of nationwide acquisitions. subject to an Office of Fair Trading been fundamentally important to the • Retailer Sony is endeavouring to force • Littlewoods and Etam came to the enquiry; continuing prosperity of these locations; up on-line prices to encourage customers market but space vacated by both groups to return to the high street where they was quickly reabsorbed; • all:sports breached banking covenants can showcase their goods and push sales. • Coffee shops including Caffè Nero, and went into administration but was Will other retailers and manufacturers and continue to • Retailers who have been upsizing have snapped up by JD Sports; follow suit? expand; strategically disposed of the smaller branches in their estate including Virgin, • Philip Green paid himself a £1.2billion •The impact of the Disability • Sandwich bars such as , Clintons and Dixons; dividend – does this mark the top of the Discrimination Act has not yet come and Benjys are now expanding market as Bhs sales begin to fall? to the fore, but a pending case against outside their original London base; • Sports fashion retailers who have been Debenhams may put it back on all rapidly expanding over the last few years • Price deflation raises its head again retailers’ and developers’ agendas; • Media stores continue to be acquisitive such as JJB and JD Sports have begun to during the course of the year, with Stuart despite competition from the internet, rationalise their estates during the current Rose confirming that general ladies wear • 2005 was the year that marked with HMV and Virgin looking for larger phase of consolidation for this particular prices are falling at between 15% to the return of terrorism as a threat to outlets and Fopp and Music Zone Bligh’s Meadow, Sevenoaks. Phase 2 lettings and market; 16% per annum. John Lewis’s Sir Stuart major city centres. In Central London, Crouch End, London N8. Lease assignment for Musgrave continuing to expand. After its successful asset managment Budgens.

7 8 In-town/shopping centre investment

John Miles BSc(Hons) Julian Norbury BSc(Hons) Matthew Hunter MRICS Dip IPF MRICS Dip IPF

The same message for the last three years? • Little differentiation in prime shop yields for example, Land Securities have increased their REITs Shop and Shopping Centre Equivalent Yields 2005 2004 When will we change our record? geographic location; overall portfolio size to circa £11.5bn while There is continued excitement over the decreasing their holdings from around 700 introduction of legislation allowing for REITs Prime high street shops: 4.00% to 4.25% 4.50% to 5.25% For the last 3 years we have been commenting • Little or no differential between long (low or different properties to just over 200; (an announcement is expected in the Pre- Secondary shops: 5.50% to 6.50% 6.00% to 7.00% on a bull run in the high street and shopping no gearing) leaseholds and freehold yields; budget report on 5th December), and many Prime shopping centres: 4.75% to 5.25% 5.00% to 6.00% centre investment market, where many of • Property companies with access to cheap large property companies are positioning Second tier shopping centres: 5.75% to 6.75% 6.00% to 7.00% the traditional market ‘fundamentals’ such as • When will the music stop? At what point debt are finding it increasingly hard to source themselves and building portfolios to convert Auction market (small lot sizes): 4.00% to 5.00% 5.00% location and rental growth prospects seem will occupier difficulties start to impact on undervalued/worked retail stock that they can to and/or create such vehicles (note ING’s to have been cast aside in the wake of the the seemingly insatiable appetite from most ‘sweat’. As a result, demand for such stock is conversion of the Abbey portfolio into a REIT rush of money into the sector. There is no investor types for retail property investments? well ahead of supply with corresponding yield labelled fund). Going forward: sign of any loss of appetite for retail property This year is likely to provide some answers; compression at the secondary end of the Rental growth starting to emerge in the investments across the board, notwithstanding market; Concerns remain over the level of gearing office sector, combined with a flattening in clear evidence of tenants struggling to maintain The market is more complex than the (note British Land reducing their gearing) and retail returns as well as increased interest in sales volumes and profit margins in a highly above… • Private UK based individuals, together with the type of assets that can be held in such overseas investment (especially Germany) competitive environment: Irish and continental buyers being driven by vehicles, as well as the cost of conversion may mean that yield compression starts to • The consensus is that we are in a ‘low large cash resources and low cost of debt. and of course the treatment of such vehicles stabilise. We see little sign of an outward • Yield compression continues to be driven interest rate environment’, and while quarter Cheap money, availability of SiPPs and tax by the Inland Revenue. Other concerns shift at present at the prime end of the by the cost and ‘weight of’ money rather than point cuts or rises cannot be ruled out, access breaks (especially for the Danes) are chasing include the permitted levels of reinvestment, market, although the yield compression at rental growth prospects; to cheap debt should be sustained. Some yields down ever further; profit distributions and restrictions against the secondary end of the market continues pundits argue that the traditional additional development. to raise our concern. While interest rates • Weight of money: from institutions taking yield factor to account for ‘property risk’ was • Full due-diligence websites permitting remain low, however, the narrow yeild gap actuarial decisions to re-weight their asset too high; increased liquidity (ie speed) to property Property Derivatives between prime and secondary is likely to Grays Shopping Centre, Grays. Investment aquisition for portfolios (many in favour of property) transactions, especially for larger and more The trial run earlier this year of a virtual remain. Halladale plc and Citigroup. £32m and from property companies and private • Stock market returns have improved but still complex lots. General recognition of the Property Derivative market has whetted the individuals who have access to cheap debt the private investor seeks security in ‘bricks concept of the ‘virtual data room’; appetite of the institutions and larger property due to low interest rates. Bank lending to and mortar’ - hence record levels of receipts companies for such a market. Despite initial commercial property has risen to an all-time into institutions offering property backed • There has been a large amount of quick (and, in our view, unfounded) fears that it high of around £135 billion, over 10% of their returns; trading and profit taking as yields continue to may lead to less trading of direct assets, the total exposure; fall; consensus seems to be positive towards such • Supply is still shorter than demand. Deals a market. • Cost of money: Continuing low interest are therefore becoming increasingly equity • Despite the concern over the ‘churn’ in the rates contribute to further general yield hungry as yields fall ever lower and ‘self shopping centre market, with many centres There will be no escape from the lure of the compression throughout the year, especially at financing’ deals become more of a rarity; now coming to the market for the third time potential super-profits from asset managing the secondary end of the market. The yield in as many years, there is still ready demand directly held property. Property derivatives, gap between prime and secondary is now • Rental growth: high street trading is generally for stock; however, will make property as an asset class too narrow in our opinion to reflect real risk tough but this should not be confused with more liquid and therefore more appealing profiles. Does this make prime (relatively tenant demand. There is still strong tenant • Record demand for ‘super prime’ and to the wider markets, as well as allowing speaking) cheap or secondary dangerously demand for large stores in 100% prime pitch, trophy assets in major city centres and smaller institutions and property companies to hedge overpriced in the long term? We would argue born out by the fact that most new, well- university towns and cathedral cities; exposure to particular sectors. the latter; designed, schemes are virtually 100% let on opening. There is still rental growth at this end • Good demand for attractive market ‘lifestyle’ • Limited rental growth prospects due to of the market but less so in the secondary towns where rents still considered to be low harshening high street conditions caused by sector; in relation to the local spending power; tightening consumer spending and decreasing retailer margins; • Institutions are still increasing their overall • Vulnerable assets (e.g. where there is a property holdings, but many large investors new scheme going into the town) are selling • Funding and forward-purchase yields now have reduced the number of assets they hold but generally take longer to sell. Sometimes almost indistinguishable to those for income as the overall size of their funds increase. The difficult to sell the second scheme in the town producing investments. Forward-purchase average lot size held by the major investors where it is about to become the third; considered a good opportunity to secure has risen substantially – not so much a flight prime new stock in often ‘off market’ situations; to quality as a drive for economies of scale • Overpriced, vulnerable assets are rarely sold from a fund management perspective. For at their asking price, if sold at all; Palace Exchange Shopping Centre, Enfield. Investment sale Whitgift shopping centre, . Investment purchase of 50% interest for Howard Holdings. £220m for ING Developments. £80m

9 10 Retail warehouse agency

Gregory Moore BSc(Hons) Nalin Nilaweera BSc(Hons) John Shuttleworth BSc FRICS Jason Holden BSc(Hons) Ian Campbell BSc MRICS Elaine Scanlon FRICS MRICS ACIArb MRICS

Overview mezzanines) that are proposed ‘post’ the of new developments for ‘townscape Failures, Consolidation, Disposals and new legislation; planning’ purposes. Cash Injections • A weakening retail climate in 2005 is leading to increased competition • Furniture, carpet, electrical and discount Extension/Rebuilding/Refurbishment/ • The following companies were placed between retailers competing over a food retailers continue to be targeted by Asset Management in administration during the year: Allders, reduced pool of consumer expenditure. landlords to relocate off open A1 retail Time Computers, Texstyle World Home, This has brought about a marked parks as they secure alternative lettings to • Wherever possible, park owners are Klaussner, all:sports, Furnitureland, weakening of demand in the retail open A1 retailers such as Next, TK Maxx, looking to extend existing properties. Durham Pine; warehouse sector, particularly for bulky Sports World and Boots the Chemists; The perception is that the planning goods; arguments may be a little easier than for • Part of the Klaussner portfolio was • Retail parks continue to be attractive entirely new schemes; • ‘Big ticket’ items, often sold via the retail to restaurateurs such as , rescued by the former management trading from around 25 stores; warehouse format, are some of the first McDonalds, and KFC; • Recent tenant failures will provide consumer purchases to be ‘put off’; some opportunities for asset • Some retailers remain acquisitive, but all • Bhs Home took over majority of management on retail parks by handing former Allders at Home stores; • All retail parks are undergoing are selective and increasingly prepared to back vacant possession to owners; reassessment. Given the lack of new wait for the right opportunity; Stour Retail Park, cantebury. Asset management for prudential. • Land of Leather successfully floated in Prestige Retail park, Burnley. Asset management and development, asset management lettings for British Steel Pension Fund. • Given the weaker occupational market, July for £100m; has been the main source of new • As market conditions toughen, landlords have been keener throughout accommodation but void units from discussions between landlords and tenants 2005 to ensure ‘back-to-back’ relettings • The volume of private equity deals business failures are now providing are becoming more common as profits when undertaking asset management are either pulling out, putting them a similar way, The Junction are carrying in 2005 was much reduced from 2004 opportunities for expanding retailers to come under pressure (e.g. permitting rent initiatives; off into the following financial year or fulfil new requirements; to be paid monthly); out wholesale redevelopment at West levels; renegotiating terms; Thurrock and Wembley; • Multi-storey development remains an • Group store disposals marketed by • A clearly tiered retail park market • The lack of new development pipeline option in London and Home Counties • As retailers’ profits come under • Glasgow Fort has moved the B&Q; has evolved, differentiating between out of town indicates the effectiveness of or introducing mixed-use development pressure, rent free periods are being perception of a shopping park further parks, their planning use and the asset planning policy in favouring town centres; including residential; renegotiated or capital contributions management opportunities they offer; towards that of a shopping centre, and • Harveys refinanced in May; increased to cover part or all of fit-out has attracted new high street fashion • We perceive that in the long term the • Landlords are building mezzanines in costs; • Occasionally, for the best properties, more tertiary retail parks and stores retailers including Zara; • Travis Perkins completed on their vacant units to preserve the right to do purchase of Wickes and separated landlords have been able to go to ‘best could be redeveloped for alternative so (in the face of proposed legislation) • Where retailers have concerns about • Large, new, purely ‘bulky goods’ retail it from Focus with independent bids’ on new lettings although where uses due to their effective economic and also in occupied units with future rental increases, some are fixing parks are very much a rarity in today’s management and property teams; voids are present, bids are often at less obsolescence for the existing use. agreements from the tenants; rents at future rent review at between than book value; market place. Even Gloucester, Oswalds 2.5% and 3.0% per annum, asking for an Retail Park includes non-bulky occupiers; • The global ownership of Toys R Us has New Development element of turnover rent or linking deals • Asset management becoming changed. • Generally, retail formats are shrinking as recognised as an expertise which is with the same landlord to get a better • Smaller towns are now being targeted retailers continue to assess their optimum worth paying for: e.g. LxB Properties overall deal; • New retail park openings in 2005 for solus DIY development, or one Evolving Deal Negotiations trading formats. Many retailers are remaining involved on the portfolio of included Brent Cross Shopping Park, or two unit developments, including downsizing and introducing mezzanine foodstores they sold to Land Securities. • Tenants are negotiating surrender Colney Fields Shopping Park, Morfa operators such as Halfords and Pets at • As the consumer downturn bites trading areas; Shopping Park in Swansea and Orpington premiums to regear leases, downsize or Home; retailers are reassessing their opening move out; Shopping Park. Each of these were • B&Q appointed Foinavon to manage programmes and the expense and timing • The effects of the proposed planning changes to some of their Warehouse either the result of the redevelopment • Local Authorities are improving their of new store openings. The way that restrictions on mezzanines are still or extension of existing properties, or stores. Full details are yet to emerge; • PC World are seeking to pay rent not known. The current result is understanding of the retail warehouse deals are being done is evolving: monthly in advance on new lettings and were carried out in conjunction with market and are looking to increase their much uncertainty over the legality of related large scale development such lease regears; pre-lettings (to tenants that require influence over the form, look and layout • Some retailers who had board as the construction of sports stadia. In approval for new store acquisitions

11 12 Retail warehouse agency (contd)

• Currys varied 12 leases with Morley in expected. Expansion has not ceased. • Where assignments were not • Furnitureland 28 store business failed June to fixed uplifts at review as opposed We expect this sector of the market to completed some 12 units have been 18 months after purchase by SB Capital. to open market value; adapt well to the current conditions and handed back to the former liquidator. be in good shape for the next economic • Land of Leather successfully floated in • In the harshening climate of demand, upturn. Miller Brothers July. Their November trading statement some tenants are taking advantage of a • Space rationalisation completed and was upbeat and they will open 7 stores number of landlords waiving their right DIY SECTOR requirement list expected. on Boxing Day with more to follow. to enforce a subletting at or above the B&Q passing rent; • Mini-Warehouse format of 45,000 Maplin Electronics • MFI’s well reported downturn in trade sq ft to 65,000 sq ft is being targeted, • Acquisition plans slowed down. led to Managing Director John Hancock • Freehold purchase is being considered particularly for smaller catchments outside stepping down in October. Reducing the major conurbations. Fewer new property costs and raising money from by more retailers. Warehouses will open; FURNITURE/HOME FURNISHINGS & property deals continues. CARPETS Misguided Mezzanine Meddling • New management has revealed • A mixed year, again highlighted by the • ScS’s profits improve and announce • Hours of time during 2005 have been Brook Retail park, Clacton. Development consultancy Brantano Footwear Ltd. a trading downturn; strategy to and funding for churchmanor estates. failure of Allders at Home, Furnitureland, 17 new store openings in their current Disposals and acquisitions. wasted by the industry in negotiating reduce costs by staff cuts, closing Klaussner, Durham Pine and Texstyle financial year to September 2006. deals which may or may not be affected Supercentre stores near Warehouses (as World Home but ScS’s and Land of by Government led restrictions on the cannibalisation impacts) and downsizing Leather’s results suggest that there is • Kingdom of Leather completed ability for a retailer ‘as of right’ to install a some Warehouses. potential in this sector. rebranding as Natuzzi. Store disposal mezzanine trading floor; programme is taking time. Homebase IKEA Currys/PC World • Landlord and tenant have had to • GUS changes show growth in the • 13th store opened in Edmonton, • Bhs Home acquire some of the Allders • Dunelm opened 12 new stores in 2005 • Footprint changes while assessing new second guess the form of the restrictions, business despite consumer slowdown; London in February 2005. Milton Keynes at Home units and are assessing further including Scotland and Northern Ireland. opportunities slowly and reassessing old present a logical argument against their will open in January 2006; stores for expansion having rebranded Three were former Courts stores and ones, a few of which were shelved; drafting and create conditional deals • Mezzanine expansion a key element of their store. they continue to expand. pending their inception. store sales; • Announced that edge-of-town • Seeking to change standard lease terms multi-storey units will be looked at e.g. • Rosebys’ Fabric Warehouse fascia • Dreams and Paul Simon’s continued with shorter lease length and fixed rental • Looking for larger stores of up to Coventry, where planning permission has expands slowly. expansion slows down and concessions • Tenants have been encouraged to invest uplifts; in the creation of additional mezzanine 60,000 sq ft. been granted and similar sites are actively are taken up. levels at a time when their profits are required. Harveys (Homestyle Group Plc) Wickes • Continue to relocate off high rented • Refinancing in May by £100m new • Furniture Village sign up at Solihull but under pressure; parks. • Wickes Extra opened their 7th store; ILVA share issue to Steinoff; are targeting fewer requirements in 2006. • 2005 store opening in Manchester of • Indecision and uncertain timing on the Comet • New owner Travis Perkins continuing 120,000 sq ft on two floors delayed, but • Subsequent board changes streamline • Chester gives opportunities for ELS Government’s part have exacerbated the • Comet parent, Kesa, want to reduce Wickes expansion plans under new secured both Marks & Spencer Lifestore the business; (Exclusive Leather Sofas) and Aura. climate of confusion; exposure to property costs by right property team despite reduced sales. units in Gateshead and Thurrock. All sizing where appropriate; three will open around Easter 2006. • Bed division retained i.e. Benson for • TK Maxx Home (no clothing) trial • We would look for these flawed and Focus Beds, Bed Shed and Sleepmasters and operation pilot in Coventry. • Looking at more mezzanine trading confusing proposals to be abandoned. • Expansion in smaller towns strengthens • DFS continue to flourish as competition expansion programme announced. stores after successful trial in five stores. under new financial management; wanes and freeholds are sought. Heavy • Long term flotation target. advertising increases their exposure as • Carpetright start to feel the consumer SPORTS/FASHION THE OCCUPIERS consumer expenditure falls. downturn, but are still one of the most • The last 12 months has seen increased Powerhouse • Some of the weaker furniture retailers ELECTRICAL SECTOR • Courts administrators did not sell the successful retail warehouse traders. pressure for high street retailers to • Continued to sell valuable leases have succumbed to the current harsher • A poor year dominated by changes business but SB Capital bought the stock • Allied Carpets continuing their portfolio expand their existing operation to landlords and sold 5 leases to retailing climate. The slowdown in the in requirements for both size and lease and some leases for Furnitureland. realignment. Storey Carpets continue to out-of-town and new ones to join it DIY Sector has been more rapid than terms. Carpetright; expand.

13 14 Retail warehouse agency / Professional

• Next have been the market leaders • Clarks looking at non-Shopping Parks. floors in Denton Manchester, and strong large units and further reduced demand; opening more than 50 stores in 2005 initial trading fuels further expansion in • This should manifest itself in a further and have around 30 planned to open in Commentary on other Retailers 25,000 sq ft stores; increase in discount for quantum from the 2006 already; Other active retailers include : standard 10,000 sq ft range; • ‘New’ retailers such as Hennes, • Dave Whelan, the founder of JJB, • Boots the Chemists pushes out some Waterstones, Beaverbrooks, Virgin, H. • Impact of B&Q’s reduction of their announces he will step down, but they store openings as business continues to Samuel, Monsoon etc will only consider Warehouse acquisition programme on continue the health club format with evolve; ‘shopping parks’ like Glasgow Fort; rent reviews on circa 100,000 sq ft units shop above in an increasingly competitive – the hypothetical tenant may well be market; • Halfords report successful trading and • New retailers are looking at existing truly hypothetical; target smaller towns as well as quasi retail stock vacated by furniture retailers and locations; • Sports World continues expansion Meteor Retail Park, Christchurch. there are now real opportunities for • Tenants increasingly arguing for both in-town and out-of-town and Rent reviews for Brookhouse Group. them; obsolescence of their buildings having • Pets at Home keep improving and have freehold purchases are being considered; an effect on value – in many cases an active requirement programme while • Emergence of ‘trade park’ operators obsolescence is merely lack of repair and competition from bulky goods retailers is into secondary retail warehousing; failure to re-fit; • Blacks opened its first out-of-town reduced; store in followed by three Henblas Square, Wrexham. Rent reviews for Dawnay Day. • Evolution of concepts and new fascias • Advantage of an existing mezzanine others trading in outdoor clothing and • Argos are no longer immune from the will keep changing the offer and look of consent not yet an issue at review but will equipment; consumer slowdown but target out-of- town; retail parks. become so, particularly once legislation in • Decathlon opened its sixth and new place. 40,000 sq ft flagship store in Thurrock in PROFESSIONAL • Staples’ rebranding of Office World rd Lease Renewals November. Progress remains slow but portfolio completed as downsize Rent Reviews General 3 Party References (Arbitration/ • Lease renewals on properties let in late focussed; programme becomes more important; • Widening rental differential between Independent Experts) 70’s/early ‘80’s not yet coming through in Pierpoint Retail Park, Kings Lynn. Asset management and the best open A1 park in a given town • Changes in RICS dispute resolution any volume; • Matalan’s growth continues, often in a • Mothercare are back on the expansion rent reviews. and its traditional bulky goods park; team procedures results in appointment smaller trading format; trail and downsizing where appropriate; delays; • In advance re-gears have replaced • In some cases the gulf is so wide as to many renewals; • TK Maxx expanding, looking at smaller • Hobbycraft sign up for 6 new stores; make the evidence from the open A1 • Delays exacerbated by applicants (and formats with mezzanine trading; park completely invalid as comparable respondents) producing long lists of • In any event, the number of retail • The Range take on larger units released evidence when valuing the units on the individuals who should not be considered warehouses let at that time were few • Arcadia’s out-of-town expansion by other retailers and show that a bulky goods park; but often with no reasons and no relative to the market as a whole; continues; department store approach can work in supporting evidence; the right location; • Certain retailers e.g. Boots, Next and • In those limited cases where renewal • George’s first stand alone retail SportsWorld are capable of transforming • Parties’ tactical use of dispute resolution rd takes place, will the standard 25 year warehouses in Manchester and Swansea • Borders concept flourishes; a park, both in terms of its nature and procedure tying up 3 parties for as term hold up? Unlikely! and on first floors of Asda Living stores rental profile; long as two or three years, which is suggests that the Living concept will be • Toys R Us target more stores in the UK unacceptable. Some 3rd party surveyors following the opening of their largest unit Northgate Retail Park, Newark. Asset management, rolled out by Asda; lettings and rent reviews for Limes Development Ltd. • Knock on effect is the de-camping of countering by introducing holding charges; in Milton Keynes. traditional bulky goods retailers to other • Brantano’s good profits back expansion non-A1 parks, with potential rental uplift • Updated RICS Practice Statements and plans; there also; Guidance Notes for Expert Witnesses NEW RETAILERS, NEW FORMATS and Advocates urgently needed and for • Marks & Spencer’s results are improved AND CONCEPTS • Size is important – the recent demise the market to adopt advocacy option as and may continue to source occasional • In September Tesco Home Plus opened of Allders, Courts and Furnitureland has appropriate as well as expert witness; out-of-town stores; a 20,000 sq ft non-food store on two both dramatically increased supply of

15 16 Retail warehouse investment

Mark Powell BA(Hons) Abigail Nash Tim Bevan-Thomas BA(Hons) MRICS Dip IPF FRICS Dip IPF

Overview tenant demand, rental growth and asset opportunities for schemes with wholesale Yeilds Retail Warehouse Sector Equivalent Yields management opportunities. Examples redevelopment or genuine asset 2005 2004 Retail warehousing remains one of the this year include the Orbital and Linkway management potential. Yields on some secondary schemes most sought after sub-sectors within Retail Parks in Cannock bought by Insight Prime open A1 shopping parks 4.50% - 4.75% 4.75% - 5.00% with restricted bulky goods planning Prime open A1 non-food retail parks 4.25% - 5.00% 4.75% - 5.50% the property market even though and Arlington respectively, Morley’s Outlook permissions could soften as occupational Prime restricted non-food retail parks 4.50% - 5.25% 5.00% - 5.75% overall returns have been lower than in purchase of Ryden Retail Park in Exeter demand from DIY and furniture retailers Bulky goods retail parks 5.25% - 6.00% 5.25% - 6.00% previous years. Total returns from retail and The Junction’s purchase of There is potential for a further in particular remains weak. We are likely Prime standalone units 4.75% - 5.25% 5.50% - 6.00% warehousing have still outperformed the Retail Park. sharpening of yields on prime retail parks to see an increased supply of this type of Secondary parks and standalone units 6.00% - 6.50% 6.50% - 7.25% IPD All Property Average throughout with flexible planning permissions as stock coming to the market. First generation schemes 6.75% - 7.50% 7.25% - 8.00% 2005. Land Securities’ purchase of most of institutions, in particular, attempt to secure Food superstores 4.50% - 5.00% 5.00% - 5.75% LxB’s retail assets early in 2005 and scarce product. The yield gap between prime and Yields have continued to harden for good British Land’s takeover of Pillar Property secondary could widen following a period quality investments with flexible planning demonstrates that large scale corporate Investors are now appraising over the last two years when the gap consents. This is due to the weight of acquisitions are an attractive route for opportunities on the basis of limited has narrowed although continuing low money, from institutions in particular, property companies to grow their asset rental growth and capital appreciation interest rates are likely to mitigate the chasing a limited availability of good base rather than relying on individual prospects. This means that the best effect. quality product and to the continuing acquisitions in an increasingly competitive properties with good prospects attract restricted supply of new out of town sector for the best properties. As well very strong demand. Riverside Retail Park retail development. as acquiring LxB’s food stores Land at Northampton, for example, attracted at Securities gained two major retail parks in least 6 bids well over the asking price. Recent examples of the strengthening Bracknell and Chester and stakes in two of yields include Riverside Retail Park others in Strood and Crayford. British Asset management has been one of the in Northampton (restricted non-food Land acquired not only Pillar’s stake in major focuses of investment value growth retail planning), purchased by BP Pension Hercules Unit Trust providing a share in but with retailer demand weakening the Fund at £110 million (estimated to be many of the country’s leading Shopping opportunities will become harder to 4.35% equivalent), nearly £20 million Parks, but also effectively became the progress particularly on bulky goods retail above the asking price. Also HUT’s asset managers of HUT. parks. purchase of Eastgate Retail Park, Bristol (part open A1 non-food) for an initial Despite negative recent press coverage yield of around 3.30%, over £10 million on some bulky goods retailers, yields above the asking price and Stadium’s are holding up for these covenants, for Currys & Carpetright, Brentford. Investment sale. £16.8m purchase of Ringwood Road Retail Park example the recent forward sale of the in Bournemouth (open A1 non-food) proposed Focus unit in Buckingham at for a price equating to an equivalent a yield just below 5.00%. The market yield of approximately 4.25% (assuming for this type of investment has, however, the vendors’ ERVs). This last example contracted with a more limited number demonstrates the willingness of property of potential purchasers. Private buyers companies to adopt a bullish approach to have tended to dominate this market investments with perceived future asset and it remains to be seen whether they management opportunities. can continue to obtain competitive debt finance on this type of transaction. There is still good demand for New development continues to be schemes with more restricted consents limited. Demand for first generation/ but purchaser’s are assessing the secondary retail parks remains strong as property companies seek opportunities carefully in terms of Alston Retail park, Keighley. Investment sale for Regional Prestige Retail Park, Burnley. Investment acquired for British Steel Pension Fund. £9.4m & City Plc. £18m (part of £32m portfolio).

17 18 Food Superstores

J Sainsbury, Rushmere Shopping Centre, Craigavon. Rent review negotiations for Central Craigavon Limited (Stannifer).

Waitrose size to 42,000 sq ft GIA with 25,000 sq those with British Land and their first forced divestment/sale of 52 stores that continued to focus on effective customer potential to expand their non-food retail While most attention has focussed on ft of sales. Given the undoubted quality with an institution, Morley, where it has was required by the OFT. Additionally, service with Asda being voted BBC Radio business has been immense, driven by the the difficulties of the Morrison group of the Waitrose offer and their UK set up a 50% share in a Jersey Property 129 Safeway stores that did not fit the 4’s Best National Retailer in its Food larger returns that this area of retailing following their purchase of Safeway coverage (with stores stretching from Unit Trust for two of its retail park Morrisons concept had to be sold. It and Farming Awards and for the 8th year offers. and the on-going strengthening of Devon to Northumberland) the future holdings in Coventry and Thanet. These could be argued in their favour that running being voted Britain’s lowest price Tesco, it is perhaps Waitrose who have looks extremely bright for this revitalised, will have an end value in the region of Morrisons have had to play the market supermarket by “The Grocer”. The larger stores have quickly demonstrated the most impressive dynamic retail operation. £260 million. with one hand strapped behind their demonstrated that they are the new performance of all the major superstore back. At the beginning of December, Asda has provided the most supermarket breed of department stores and reflect traders during 2005. Tesco With over 1,780 stores in the UK, Tesco Morrisons announced the completion of activity in Northern Ireland with 6 of a closer attachment to the European Tesco continue to win the mass-market have exceptional coverage and market the Safeway conversion project. Now its 12 stores purchased from Safeway hypermarket concept than we have Last year we reported on some race and appear to be pulling ahead of share. Although this is approximately will be the real test of Morrisons’ bold being reopened under the Asda banner seen for some time. Asda and Tesco are increased activity from Waitrose after a their rivals in nearly all departments. The 100 stores less than they had in 2004, bid to take a leap forward into the at the end of October. The remaining 6 trialling wholly non-food retail stores number of years of consolidation, and big news this year was that recent studies they cover 5 different formats. This mainstream national food store market. opened from the middle of November to that may introduce new competition in a the last 12 months has seen these green have suggested that Tesco hold 40% of incorporates their recent acquisition of The next twelve months will be crucial. beginning of December. This has injected sector which has seen some of the gloss shoots flourish. In February Waitrose all sites with food store development the Cullens, Harts and Europa chains new pace into the Northern Ireland wiped off of its profile over the past 12 acquired 19 Safeway stores that the potential, assuming that planning that now gives them 527 stores under Sainsburys supermarket sector as, since the original months. Government, through the Office of Fair permission was granted. the “One Stop” fascia. They have over Despite a rash of acquisitions in smaller flurry of activity by Sainsburys and Tesco Trading, had prevented Morrisons from 500 stores under the “Express” banner groups and new stores between 2002- from 1998 to 2002, there has been little Where new lettings to food superstore trading due to competition fears. This assumption is of course highly that are the small local stores. The 2004, Sainsburys will have only opened new development. The exception to this operators have occurred, there has been speculative, but it nevertheless “Metro” concept in town and city centres 4 new superstores in the 2005-2006 has been Tesco who have opened 2 new a move towards ratcheted increases to The merits of that decision look demonstrates that Tesco’s competitors has over 150 stores. Their traditional period and are expected to close 5, a net stores with a third planned for Derry the Retail Price Index with open market obscure: the identities of the 19 stores have failed to keep up with new store superstores now number circa 500 and reduction of 1 store. Some 40 stores subject to planning permission. rents and 5 year upward-only rent do not suggest that the Government’s development. This would apply especially the hypermarkets trading as “Tesco Extra” are, however, being refurbished with reviews being abandoned. We suspect competition fears were addressed. This to Sainsburys, who have been turning (their version of a one stop destination several of these involving extensions. Rents and Yields that this reflects a strategic approach to assumes, of course, that such fears should their attentions inward to sort out their store) have over 100 outlets. Their focus is therefore firmly on working Given that so many freeholds are in maximise the growth potential from the have been raised in the first place which management and operational activities. their existing portfolio. The smaller the hands of the retailers and given the operational business, but equally it can is questionable. Nevertheless, Waitrose Tesco, in contrast, have continued to Morrisons convenience stores are nevertheless likely nature of their expansion programmes improve investment yields. have taken advantage of this position and work the market for new opportunities. With Morrisons failing to reach their to see further net additions of at least over the past 2 years, there is precious have been re-branding and re-fitting their profit targets, investor and City of 50 stores to bring the total Sainsburys little evidence coming through of market Whereas prime food superstores let to new acquisitions at a remarkable speed, Furthermore, these new (potential) London patience is being tested. Anyone, portfolio to 774 stores. rental levels. In London, however, ERV’s undoubted covenants on institutional full demonstrating real commitment and flair Tesco stores will, in nearly every case, however, who felt that the integration are now pushing the £30 psf barrier and repairing and insuring leases with 5 yearly in their project management. provide organic growth from within their of a 300 strong chain of Safeway Asda £20 psf has been established in the major upward-only rent reviews are capable own resources. Relatively few sites are supermarkets would be easy in terms of Asda’s activity has been keenly observed provincial centres for the best examples of achieving sub 5.0% equivalent yields, This initial group has been followed being provided by third parties. Tesco re-branding and logistics has clearly failed due to them being owned by Wal- of good quality food superstores. those linked to RPI also achieve very up by a further 5 acquisitions from are acting as their own land purchaser, to fully grasp how retailing works and Mart of America, but since 1999 (when strong prices given the guaranteed ‘bond’ Morrison which, together with 6 new developer and ultimately owner occupier. what is involved. the acquisition was completed) there The restrictive planning regime has characteristics of the investments. store developments, have brought This not only makes them a formidable Not surprisingly, organic growth at has been no exceptional news on the reigned in the further expansion of the Waitrose’s total expansion this year to retailer but a very significant property Morrisons has come to a virtual standstill, new store development front. The supermarket sector. In some respects, In conclusion, both in occupational and 30. The retailer now trades 176 stores company with a remarkably diverse although 2 new stores in Scotland were wheels, however, are now turning and in however, this has only added to the investment terms, the food superstore with a turnover approaching £2 billion, portfolio. This is evidenced in the fact opened at the beginning of 2005. Given November this year they opened their strength of the existing players with market is the strongest in the commercial exceeding that of their cousins in the non that their freehold to leasehold balance the on-going growth of Tesco, the exciting largest store to date in Milton Keynes. fewer opportunities for the growth of retail property sector with every reason food sector, the John Lewis Department throughout their portfolio is circa 80/20. improvements at Waitrose and strong The new store comprises 125,000 competition. Such restrictions have not to expect such strength to be maintained Stores. The new acquisitions have also This strength has enabled Tesco to enter competition from Asda, it is not surprising sq ft and includes an expanded non- held back the majors on their larger and probably improved upon further increased the average Waitrose store into a number of joint ventures, including that Morrisons feel aggrieved about the food sector. The UK management has stores. With open A1 retail consents the within the foreseeable future.

19 20 Leisure

Overview type of activities proposed, or indeed assimilating Spirit’s 1832 pubs into its own Health and Fittness equity company, Permira, took a 30% • Stanley Leisure sold their bookmaking they can refuse to grant the license. It 8200 pub estate. Analysts suggest that stake in Gala for £200 million. business to take advantage of the new Leisure has been at the forefront of the is this element of discretion that is likely Punch may be required to sell a significant • Another year of consolidation for most casino opportunities in the UK and national news this year with the much- to prevent a proliferation of 24 hour proportion of the estate, with one broker groups in this sector. • Top Ten Holdings, the third largest UK immediately instigated a search for 5 new debated change in the Licensing laws in drinking establishments throughout the putting the “sell on” figure at 43%. bingo group, acquired the thirteen strong sites to add to the existing portfolio of 41 England and Wales. The jury is still out as ; • Esporta sold thirteen non-core sites to Westvale Bingo for a reported £5.35 casinos. to what impact these changes will have Restaurants Virgin Active to focus on the premium million. on the industry. Generally, this has been • There is a right of appeal, which is heard sector. Bookmakers another reasonably quiet year for this at The Magistrates Court; • The Restaurant Group Plc sold Caffe Casinos sector in property terms but busy in the Uno to Dawnay Day’s Paramount Group • Rumours continued about the possible • The ‘fixed odd betting terminal’ corporate world. • The sector has shown some cautious who already operate Chez Gerard and sale by Whitbread of their health and • The government initially proposed revolution (casino type games in betting expansion during the year. Barracuda Bertorelii’s. fitness concept, David Lloyd Leisure. 40 new Las Vegas Style “super casinos” shops) continues to fuel a general Prime leisure property continues to be Group Plc continues to open new sites across the UK and the liberalization of expansion in the sector across the UK; attractive to investors, providing a good following its sale by PPM Capital to • Carluccios are due to float on the • LA Fitness was sold to Mid Ocean the gaming rules to include: 24 hour return with leases remaining relatively Charterhouse Capital Partners; London Stock Exchange and are Partners and plan to continue a more opening for casinos, immediate access • Stanley Bookmakers sold their 624 long and being supported by good conducting an aggressive new site limited expansion of around twelve clubs for the public, unlimited jackpots and betting shop portfolio to William Hill for covenants. In certain sectors, however, • Tiger Tiger’s owner, Urbium, rejected acquisition programme. a year. gambling to be permitted on Good £504m taking William Hill to over 2,200 (including cinemas, ten-pin and nightclubs) a £101m offer made by Regent Inns Plc Friday and Christmas Day; outlets; there is little evidence of rental growth. and was then sold to a management • Legal & General Ventures acquired • Fitness First, with over 160 UK clubs, Tenants are negotiating hard at rent buyout backed by Electra Partners for Tragus Holdings for £107 million. The was sold by Cinven to European private • After much controversy and lobbying, • Hilton’s gambling arm, Ladbrokes, are review and landlords are being required £113m. They are now seeking new sites. group plans to expand Café Rouge and equity group, BC Partners, for £835 the openings were (for the time being) seeking to add an additional 200 sites to to fall back on guaranteed uplifts where Subsequently, Urbium changed its name Bella Italian. million. This was more than twice the limited to 8 across the UK; their 2,000 portfolio of shops; they exist. to Novus; figure it had paid two years previously. • La Tasca announces its maiden year • American casino groups’ interest in the • Bet Fred continue to expand, especially Public Houses • In June, Laurel Pub Company (owners results, turning in a pre tax profit of Cinemas UK is waning, although UK operators in the South East, taking their portfolio to of Yates) acquired 101 outlets from SFI £2.6million, and opening ten outlets with such as Aspinalls continue securing sites more than 550 shops. • This sector has had to digest not only Group (in administration) leaving 49 a further eight in the pipeline. • As we had predicted last year, 2005 on a conditional basis; licensing and planning changes, but also outlets with the administrators; again saw few new openings and this consider the likely effects of a smoking • AIM quoted Clapham House Group trend is unlikely to change in the next few ban in 2007; • Herald Inns acquired the eight-strong continues to expand their three main years. Mood Bars chain; concepts: Bombay Bicycle, Gourmet • The Licensing Act 2003 came into effect Burger Kitchen and The Real Greek. • Following its takeover of UGC in 2004, on 24 November 2005. It transferred • Ultimate Leisure reported a 6% fall in Cine UK began the re-branding of its responsibility for licensing from the Local pre-tax profits. They tabled, however, a • Other operators who continue to former competitor’s cinemas with one Magistrates Courts to Local Authorities. bid for rival operator Inventive Leisure expand include , Fat Cat, , Ma new opening in Bury St Edmunds. Previously, late night venues required a who trade as ‘Revolution’; Potters, Charcoal Grill and Tootsies. mix of licenses from both the Magistrates • Vue (formerly Warner Village) Court and the Local Authority. This • Luminar Plc continued to refocus its • Private Equity company, TDR Capital, purchased Ster Century’s seven UK has now been integrated into a single business with the sale of 49 non-core (owners of Ask, , and Pizza Express) cinemas following its purchase of two licensing jurisdiction; clubs in its ‘Enterprise’ division to a continue to expand these brands. from Cinemark. management buyout. Luminar reported • New applications require an operating flat trading figures; • Dominos Pizza and Pizza Hut continue • Irish group, Cinema Holdings, agreed schedule. This outlines the proposed to go ‘head-to-head’ on key sites. to purchase eleven cinemas, including hours of operation, with an assumption • Clear Channel Entertainment The Empire, Leicester Square, from Terra by the Local Authority that a grant will purchased Vince Power’s remaining stake • Subway continue to expand aggressively. Firma, the owner of UCI/Odeon. be given unless relevant representations in Mean Fiddler for £13 million. Power opposing the application are made; plans to open new music venues in • The numerous corporate transactions Bingo London and Europe. during the year are likely to translate into • Local Authorities can then curtail, increased demand for sites in 2006. • Gala Clubs purchased New Generation, through imposition of conditions, the • Punch Taverns aquired Spirit Group for , for £18 million as private Broadway Plaza, Birmingham. Lettings for Skelton Group. £2.7bn and is now faced with the task of 21 22 Further information and previous briefi ng papers

Further Information

Further copies of this and previous briefi ng papers may be obtained from Chase & Partners as may additional information or assistance on planning and development issues.

Chase & Partners, 20 Regent Street, St James’s, London SW1Y 4PH Tel: 020 7389 9494 fax: 020 7389 9456 www.chaseandpartners.co.uk

Previous Briefi ng Papers Retail Property Briefi ng Paper 1- October 1996 PPG6 Retail Warehousing: towards consensus? Matter of Control! Retail Property Briefi ng Paper 2- November 1996 The Sequential test: Opportunity or problem? Retail Property Briefi ng Paper 3- December 1996 End of year Round up - developments in the retail property market Retail Property Briefi ng Paper 4- December 1997 End of year Round up - The Retail & Leisure property market Retail Property Briefi ng Paper 5- May 1998 rating of commercial property - Update 1998 Retail Property Briefi ng Paper 6- December 1998 End of year Round up - The Retail property market Retail Property Briefi ng Paper 7- December 1998 End of year Round up - The Retail property market Retail Property Briefi ng Paper 8- July 1999 The ‘need’ for development Retail Property Briefi ng Paper 9- December 1999 End of year Round up - The Retail property market Retail Property Briefi ng Paper 10- February 2000 Flexibility and The sequential Approach. Retail Property Briefi ng Paper 11- March 2000 Need and the sequential approach Retail Property Briefi ng Paper 12- November 2000 Funding the improvement of Town Centre & town centre management schemes Retail Property Briefi ng Paper 13- December 2001 End of year Round up - The Retail property market Retail Property Briefi ng Paper 14- December 2002 End of year Round up - The Retail property market Retail Property Briefi ng Paper 15- November 2003 The governments Response to the proposed changes to the use classes order Retail Property Briefi ng Paper 16- December 2003 draft Planning Policy statement 6. Planning Town Centres Retail Property Briefi ng Paper 17- December 2003 the Retail Property Market End of Year Roundup 2003 Retail Property Briefi ng Paper 18- April 2004 Making better use of Supermarket Sites - The London Plan Retail Property Briefi ng Paper 19- April 2004 Mezzanines Retail Property Briefi ng Paper 20- December 2004 End of year Round up - The Retail property market

Victoria Arcade, Great Yarmouth 23 Investment sale for London & County Ltd. 24

CHASE & PARTNERS Retail & Leisure Property Specialists c&p www.chaseandpartners.co.uk 020 7389 9494

Front & Back Cover: Whitgift Shopping Centre, Croydon. Investment purchase of 50% interest for Howard Holdings.