Spring Retail Report 2011

In-Town Trends Q &A on the State of the High Street Short Term Testing Out-of-Town Market Snapshot Bursting Bubbles... Yield compression but not growth potential Powering Majors Food property sector retains strength Unearthing The Deal Prime Wins Again - In-Town Investment 01

Contents

“So with no more 03 Changing Dynamics Introduction by Graham Chase ‘hedging’, the true impact of the 07 In-Town Trends Q &A with Mark Paynter financial failures of Q4 2008 are 13 Short Term Testing plain to see and it Out-of-Town Agency is not pretty.” 18 Realistic Expectations Occupational Marketplace Changing Dynamics Inroduction by Graham Chase 22 Unearthing the Deal In-Town Investment

26 Bursting Bubbles... Out-of-Town Investment

30 Tenants on Top Professional

34 Powering Majors Food Superstores and Supermarkets

41 From Crisis to Turmoil Town Planning

45 Who’s who at C&P Key Contacts 03

Introduction by Graham Chase Changing Dynamics

Our annual reports since Q4 2008 have been clear that the downturn in the economy and retail property sector will comprise two distinct phases.

The first phase was the failure and The second phase of the downturn subsequent impact of the banking follows on from the first but it is the system on both world and domestic squeeze on the consumer which has economies. Much of the UK banking hit hard on the occupational retail market is on the road to recovery market. This downturn in consumer and in the USA bank debt levels have confidence and expenditure almost returned to normal. Stability will shape our economy for the has been achieved in this crucial foreseeable future. In addition, business area, although not without the quantitative easing that the considerable pain and notable Government used to finance and exceptions. In smaller economies dilute the impact of the banking where domestic banks played in the crisis between 2008 and 2010 has now wider global financing markets, their ended. So with no more “hedging”, exposure has been too great and the true impact of the financial hence the emergence of the PIGS of failures of Q4 2008 are plain to see Portugal, Italy, Ireland, Greece and and it is not pretty. Spain. In the UK this is manifesting itself in the problems of a number of The banks are clearly still nervous Irish based investors who, fuelled by about their loan books, and with good loans from their domestic banks in reason, as retail occupiers continue 2006 and 2007, were keen to dilute to weaken. Banks are requiring more the extent of their exposure at home. regular formal valuations and with 70% of commercial property loans due for renewal in 2011 and 2012, it would not be surprising to see more aggressive action by the banks as they manage their debt customers with less latitude. 04 05

Unemployment reached its highest point since property as at February 2011 stands at a which chased cheap products after yields 1994 for the 3 months to January 2011 at 2.53 massive £193 billion, but shows a significant went into freefall in Quarter 4 2008. Profit million. Inflation rose to CPI at 4.4% and fall from £254 billion in January 2010, which taking by investors during the latter part RPI at 5.5% in January 2011, but fell back in is a surprisingly quick turnaround given the of 2010 has given the impression that the February to 4.0% and 5.3% respectively. The oil tanker characteristics of the UK property market has recovered. However, this has bank rate remains at an historically low level market. In addition the UK is seen as a stable focused on a narrowing category of prime of 0.5% but the fear is this is not for much environment and a good place to invest and super prime property. In the future longer. Retail sales were down 0.9% month- money in a volatile world, especially the retail property will have to perform on on-month in February 2011 and consumer West End and City of London markets. a more realistic basis through income expenditure contracted by 0.6% in the last and rental growth rather than a simple quarter of 2010. In contrast and of potentially The weakness of the pound sterling is appreciation of capital values through yield good news to consumers is the BRC Nielson helping manufacturing expand with exports compression. shop price index which shows that overall performing well in relative terms. Tourism shop price inflation slowed to 2.4% in March also likes the cheap pound and continues With rental growth unlikely to be a feature 2011, down from 2.7% in February. Further to provide a strong spending platform with for many retail properties until at least the ONS have advised that the volume of retail no sign of a fall. Record retail property 2013, the pressure today is for yields to rise sales in March was up 1.3% compared with rents continue to be achieved in London’s rather than stay static or fall further. In the March 2010. West End. With the 2012 Olympics around narrower prime retail property sector, yields the corner, the timing perhaps could not are beginning to look expensive against This suggests the worst is behind us but not be better. Again, London and the South rental growth potential, although income over. With discounting by retailers going East will benefit from these injections of security is beneficial. to even greater depths, the consumer will expenditure. benefit, although probably at the expense of Despite high vacancy rates and weak retailers’ margins which will come under even Despite the gloom, mid-market established tenant demand, good secondary property more pressure. branded fashion retailers with good business is beginning to look fairly valued, although models such as Primark and Next continue to risks remain high. However, as the economy However, these are not short term issues. dominate the market and show that returns recovers, this could be the right time to buy The private sector is attempting to absorb can be increased, albeit at the cost of others’ good secondary retail property if debt can public sector cuts but is not able to keep pace market share. Similarly, the food sector has be secured. Sensible loan to value ratios with redundancies, especially outside of the We are therefore facing the dark days of the continued to provide solid performances coupled with interest cover from rental South East. We are returning to a two tier second phase in the downturn brought about although margins are under pressure across income, assuming rising interest rates, is economy once more dominated by London by the excesses of the noughties. Gordon the board. Marks & Spencer surprised The possible in this sector but the investor and and the South East. VAT has risen by a third Brown’s optimistic claim of having banished City with better than expected like-for-like borrower need to choose and budget wisely. from 15% to 20% and will not be reduced. Tax cycles only serves to demonstrate that sales for Q4 but only up 0.1%. Although In addition empty rates are a penalty. Vacant band changes have brought nearly 700,000 markets cannot be controlled. Further, the retailer failures have not been as numerous property is now at an average of nearly 14% additional workers into the higher rate tax High Street continues to face competition as 2007/2008 the strain on the consumer is in the High Street. This requires valuations bracket. Disposable incomes fell by 0.8% from internet sales which now comprise filtering through and this will continue to put based on a triple net basis, i.e. costs, voids in 2010, the first time since 1981 and are 9.8% of all non-food retail sales in the UK most retailers under pressure for at least the and empty rate payments. likely to fall further in 2011, accelerating the by value. next 12 to 18 months, as demonstrated by squeeze on consumer expenditure as living the second CVA undertaken by JJB Sports in Development is showing signs of returning standards fall in real terms for the first time One thing which is clear is that it is not March of this year and the sale of All Saints but on a cautious basis. The schemes are in generations. Frighteningly, despite the going to be the UK’s consumer that, unlike to a Lion Captal-led consortium. very different to the pre-Lehman Brothers’ reduction in lending, household debt has past economic downturns, spends the collapse, reflecting today’s weaker tenant increased in February of this year to a economy back towards a brighter future. Rental growth in all but a few locations, demand profile and more limited bank record level of 175% against income. This This time it will be the private sector such as Central London and some other lending regime. Further lending on is higher than the peak of the market and corporates who will lead the charge. UK major provincial centres, remains static or speculative development is not an option consumer boom in 2007 when it stood at Plc is not over-geared and with three years continues to be negative. and only the larger corporates are able to dip 173%. There is a long way to go to achieve of efficiency measures is likely to be the their toe in the water where they can secure a sustainable balance and the consumer is driver of better economic times rather than The yield compression for prime property soft entry costs and reduced risks. particularly weak. the consumer. Borrowing on commercial has peaked, reflecting a weight of money 07

In-Town Trends... Mark Paynter gives his thoughts on the state of the market and the prospects for future development schemes in town centres.

Q What are the regional differences you are Manchester, all feature in the top 25 levels of seeing across the UK? vacancy for larger centres.

There are wide differentials in vacancy In a tight market with less opportunities for rates with London and the South East growth, retailers will target specific towns having the lowest levels in towns such as to secure best returns. That investment is Salisbury, Guildford and Chelmsford, whilst likely to be in bigger, more efficient space 90% of the top 25 highest vacancy levels for in the larger centres with weaker mid-sized the larger towns are in the Midlands or the towns, or those overshadowed by stronger North of England. neighbours suffering. The knock-on effect of the regional differences in vacancy is that According to the Local Data Company, development is likely to come forward earlier vacancy rates are currently dipping below in London and the South East compared trend, however that trend is still on an to other parts of the country. Indeed, the upward path. progression of Westfield, Stratford and One New Change in the City of London, Some centres saw vacancy increase by demonstrates the point. as much as 30% during 2010. Those few centres which did see a reduction were Q Has retailing in London been immune mainly in London and the South East and from the recession? the level of change was relatively small, generally between 0% and 5%. The Central London retail market is currently set apart from the remainder of The level of public sector employment is the UK. Its strength has been particularly higher in the regions outside of the South highlighted over the past few years and there East. With the ongoing government cuts, continues to be a shortage of quality stock vacancy rates in the regions are likely to to meet strong levels of retailer demand. worsen over the next 12 to 24 months. Supply is confined to a limited number of streets and is therefore constrained. By way of example, the recent second CVA of JJB dropped leases on some 89 stores, With many buildings of mixed use there of which only 14 were in the South East are few opportunities for development in including only 3 within the M25 area. the strongest locations. Two developments opened last year, Land Securities – One New A mantra we continually hear is that Change in The City and Shaftesbury’s, St. the major catchments and bigger cities Martin’s Courtyard. are attracting multiple retailer demand ahead of the smaller centres yet Sheffield, Tenant mix and strong asset management Birmingham, Nottingham, Stoke-on-Trent, have brought success for Howard de Leeds, Liverpool, Bristol, Leicester and Walden along Marylebone High Street 08 09

premium transactions was the reported Perhaps we are seeing some locations £14 million paid for the benefit of the peaking, notably in London and the South former HMV lease at 150 Oxford Street by East. Clearly retailers are only prepared to Forever 21. commit or continue occupation in those locations which offer the best chance of The scarcity value of A3 (restaurant and future returns. cafe) premises has also driven premiums. As a result, some businesses in this sector The expansion of the convenience store of the market have sought to adapt their sector has continued to dominate in the concept and food model to suit an A1 London suburbs. It is not uncommon to planning consent in order to improve their be less than a 10 minute walk from the chances of securing premises. Premiums same operator and we are seeing retailers are also seen by some non-UK retailers as willing to locate virtually next door to a potential currency play, so that if they do their competition. An example of this is in assign their lease in the future they will not Fulham where Budgens, Co-op and Waitrose lose out. are all located within 50 yards of each other, and similarly in Clerkenwell where Tesco The current weakness of the pound has also and Waitrose are next door to each other. brought a wider mix of nationalities to the Capital, and a cultural break or holiday to Elsewhere in London we have noted a London is now much more popular than 10 change in that the return of office demand years ago. The continued strength of the in some locations has trumped retail values top end London residential market has also at ground and first floor, and therefore led produced a safe haven for foreign capital and conversion to office rather than retail use. those who shop in the premium locations. We have been used to this phenomenon with Whilst retail purchases offer value to our residential being a dominant driver but now European neighbours demand is likely to there is yet another option to consider. remain strong. Foreign retailers continue to see London as one of the top global retail In conclusion, the outlook for Central Topshop - Salisbury locations in which to position their brand. London remains far more positive than New entrants include Tory Burch, The most other parts of the UK and for occupiers and The Crown Estate on Regent Street. Securing premises in Central London is Kooples and third wave coffee operator from seeking to get into the best locations. Shaftesbury have achieved similar success very much about placing and selling the Australia, St. Ali. Competition will remain strong but with in Carnaby Street and Covent Garden whilst brand and fascia to the big estate landlords. good advice essential as some locations Mount Street, controlled by Grosvenor, is They control property in major locations, Not all locations within the London area are appear to be showing signs unrecognisable from its offer of five years almost in the same way as a purpose built a guaranteed success as competition remains of overheating. ago. The landed estates with management shopping centre, such as Sloane Street, high and retailers are reappraising their control have created shopper friendly Regent Street, Long Acre, Seven Dials etc. priorities. By way of example, Richmond- Q What is the outlook for rents over the next environments and streets lined with Contrast the intense scrutinising of the upon-Thames has seen the pre-letting two years? interesting and exciting retail brands. This Central London landlords as to whether the of a 20,000 sq ft development on George in turn has driven rents as tenant mix is retail offer is acceptable or not, with the Street to Whole Foods Market, yet Next and A number of commentators are predicting continually improved and new opportunities majority of the UK market where landlords Currys Digital have pulled out in the last that the days of retail businesses being created. One of the latest initiatives is are just pleased to secure interest. 12 months and Ted Baker have recently judged on ever increasing like-for-like sales along Regent Street with the relocation of placed their unit on the market. Potential are over. The view is that the next few years Burberry into the former Habitat premises One effect of such strict tenant mix policies reasons include high rents, the success will be dominated by retaining or taking bringing forward the old Burberry block for has been to drive high premium values of Kew Retail Park and the dominance of market share from competitors. If correct, redevelopment. where the assignment of an existing lease Kingston and now Westfield. Interestingly with the size of the cake now falling in such is unfettered by landlord control and Next are represented in Kew Retail Park and a scenario, rental growth will be difficult Record rents have been set on both Old Bond approval. A recent example is the former have recently secured a 27,000 sq ft store in to achieve in all but the very best locations Street at £950 Zone A and Oxford Street, Descamps unit on Marylebone High Street a relatively off-pitch position in 6/9 Market which some refer to as “super prime”. In where Aldo in February 2011 paid a figure of where a premium of £750,000 was secured Place, Kingston. such a market retailers will continue to £725 Zone A. on assignment. One of the most notable attack their cost base for efficiencies 10 11

including property except where guaranteed Land and Area Partners Trinity Walk in Due to the current poor prospects for new returns, greater efficiency or increased Wakefield (500,000 sq ft), but what of the development in town, we have seen some market share can result i.e. big space in the future? The recent publication by BCSC of the larger store retailers such as Marks bigger centres. and Lunson Mitchenall suggests there is no & Spencer committed to opening limited retail development of any substance coming format stores out of town. John Lewis Market sentiment suggests we are at the end through in 2012 with only 1 million sq ft have introduced their new At Home format of a run of retail growth fuelled by increasing potentially in 2013 and an optimistic outlook in order to secure new modern space on consumer expenditure which has been with suggesting this could rise to 3.4 million sq ft a business model that allows for viability us for the past 15 to 20 years. in 2015. by reducing incentive requirements and securing affordable out-of-town rents. One bright spot for landlords is the reduction According to the BCSC Report some 50 in availability of quality space in the best million sq ft of planned shopping centres, Finance continues to be an issue. Those locations. The lack of a development which includes a core of 17 major schemes that are currently building schemes include pipeline coming through will only exacerbate ranging between 215,000 sq ft and 1.6 million a leading property company, a private the situation. Retail may be under pressure sq ft, have been placed on hold as a result of equity-backed vehicle, and a pension fund, at the present time, but it will not always be the recession. Such are the complexities of with no apparent requirement for external so. Those retailers who are able to position in-town development including compulsory finance. There are reports that mezzanine themselves for the recovery will have to purchase, it will not be easy to bring these finance is capable of being secured but at decide - do they compete at sensible rental back on stream at a moment’s notice. A levels of around 15% which is unlikely to levels to secure the limited quality stock number, such as Friar’s Walk, Newport, assist viability. available or do they sit tight and hope that Northern Quarter at Portsmouth and availability of space will improve in two Northgate, Chester, have gone back to the Those that are struggling with finance for years time, when shopping is back in vogue? drawing board to see whether they can be development, but with genuine prospects of reduced in size to achieve viability. pre-lets, will find that the best route is likely It is interesting to see retailers driving to to be a joint venture partner. We have a list maximise sales from the space that they do Few developers are yet brave enough of parties wanting to place their money into occupy. A recent announcement by Aurora to take a forward view, although Land genuine opportunities that reflect the new Fashions confirms they are to consider Securities have started on site at their Trinity market conditions and are viable. So there placing Warehouse at first floor level above development in Leeds with an opening are parties seeking to secure development Oasis – a not dissimilar position that has programmed for 2013. The general scenario positions but on the correct assumptions to existed for many years at Arcadia with their is that most developers will require in excess reflect the occupational market likely to exist Dorothy Perkins and Burtons brands. If of 50% of income pre-let before starting for the next 2 to 5 years. a retailer has to bite the bullet on rent to on site, based on viable rent and incentive secure a prime location then they are driving packages. Many major retailers are used The best format retail led development maximum sales from the total space on to heavily incentivised packages with currently is a supermarket anchored which they pay rent and rates. Density of elements of turnover rent and are unlikely scheme with a limited number of retail sales becomes even more important than has to be brimming with confidence about the units alongside. Alternatively an extension been the case in the past. immediate future based on the current of between 6 and 12 units alongside an economic background. Today, it is difficult established shopping centre which creates For investors, careful research will be to see how both developers and retailers will new modern large space catering for a Travelodge - Chichester strong catchment. required on levels of supply and vacancy, take a more forward and optimistic view if Letting and Investment sold on behalf of Jansons Property size of competing units, demand and just viability is to be achieved in the traditional where true headline and net effective rents town centre shopping centre model. It has however been reported that Sheffield Although not an extension, Westfield and really lie. City Council have recently agreed to provide Hermes have recently reconfigured part The other figure in the equation is land a £10 million loan for the compulsory of the existing scheme to create larger Q Development – Who jumps first? value but with many local authorities under purchase of 20 acres on Hammerson’s space at their Friary Shopping Centre financial constraint, they will be reluctant to Sevenstone scheme, with the Homes in Guildford. Pre-lets have already been There might be some 2.7 million sq ft of make the substantial compromises required & Community Agency putting forward exchanged with Topshop, River Island, new space opening this year including on their pre 2007 residual values in order another £30 million towards enabling works Republic, HMV. It will be interesting to see Westfield’s, Stratford City (1.9 million sq ft), to assist in kick-starting new developments and accepting a deferred payment. An how they fare in securing lettings on the Standard Life / Shearer Property’s Parkway sooner rather than later. encouraging sign but should the public purse remaining units in one of the top towns in in Newbury (300,000 sq ft) and Sovereign be subsidising private development? the South East. 13

Out-of-Town Retail Agency Short Term Testing

Weak market conditions have provided an opportunity for a growing number of retailers to trial new locations. This does not just apply to regional retailers and local businesses. Household names such as Toys ‘ ’ Us and Sports Direct have also adopted this strategy.

This is through temporary occupation of properties that landlords have not been able to let, often on the basis of the tenant paying no rent. This is not always as one-sided as it sounds. It gives the landlord the opportunity of negotiating a longer term occupation should the premises prove to be a profitable trading location for the tenant, and in the interim, avoids empty rates liability.

Retailer Round Up There is a growing category of “value retailers” expanding out-of-town. They are A noticeable number of retailers have seeking opportunities for growth at a low cost cautiously returned to the market, some with restricted liability. B&M Home Stores trialling a small number of acquisitions and Home Bargains have widened their area and others becoming more aggressive. of search. Other acquisitive retailers in this This has been illustrated by vacancy rates category include Poundstretcher, Poundworld in the out-of-town sector dropping from (trading as Discount UK), Poundland and a reported 12% in 2009 to 10.5% recently Family Bargains, who are the large format (Trevor Wood Associates). fascia of 99p Stores.

Marks & Spencer are expanding with their Pets at Home continue to open new stores General Merchandise format and looking at but have altered their requirements to a number of flagship store locations. Asda include smaller stores of 3,000 - 6,000 sq Living published requirements for a new 150 ft. This has recently been complimented store roll-out in October 2010. by their requirement for a separate fascia, Companion Care Vets that has published Acquisitions in the fashion/clothing sector requirements for units of 1,500 – 3,500 sq ft. have become more selective. Among others, Next, New Look, Arcadia, Matalan and Meanwhile, Hobbycraft, who trade from 51 Peacocks remain active and are able to secure stores plan to open 15 new stores in 2011 deals on tenant friendly terms. There are having been brought by Bridgepoint Capital also a number of acquisitive fashion retailers a year ago. The requirement is for stores of who have previously only traded on the high 7,500 – 10,000 sq ft with the ability to install street. Primark are reportedly looking to trading mezzanines. acquire their first retail park unit in Milton Keynes and Republic are trialling three out-of- Other retailers such as Dunelm, Go Outdoors town stores. and The Range have continued to take larger units on tenant friendly deals where there is 14 15

relatively little competition. Go Outdoors who for Click & Collect outlets of circa 1,500 sq Furniture and Carpets currently trade from 27 stores plan to open ft. This reflects the lack of opportunities 40 new out-of-town stores following a recent in town centres with the cancellation of The furniture sector has picked up as the £28m, cash injection by 3i. most development projects. Further, the strongest companies have survived. ScS, incentives required for their in-town stores CSL and Steinhoff are looking to acquire in While it remains a “tenant’s market” the take are very much higher than that required selected areas and DFS’s stated expansion up of space shows the strength of demand for the new out-of-town formats which will plans have been proved by recently buying against restricted supply in the stronger become increasingly important in driving six leases from Dixons totalling 120,400 sq trading centres. Consequently, some retailers business growth. The business model for ft. The carpet sector has been affected by are having to compromise their requirements their new formats is viable out-of-town the recession with Carpetright disposing of in terms of size and location, providing that whereas the traditional formats in-town stores in Ireland and Hilco moving 26 Allied attractive deals remain available. Smyths are often not viable. Carpets stores from administration to Savana. Newcastle – St James Retail Park – Asset management on behalf of Toys are bucking that trend by looking for Brookfield / Motcomb Estates. New letting of 20,000 sq ft to B&M Dreams continue their expansion and are high profile retail parks and opened on Newer format smaller unit bulky goods looking at new regions. The Easy Living Team Valley Shopping Park, Gateshead, in occupiers who are active in the market A number of the original B&Q leases group went into administration in March summer 2010. include Wickes Kitchens and Bathrooms, who nearing expiry have been regeared 2011. While no group purchaser has come are looking at the units of up to 5,000 sq ft. including a portfolio of seven stores with forward, some of the properties have Next Home opened their largest store Wren Kitchens require units of 7,500 sq ft British Land in Spring 2010 but at rents generated good interest. adjacent to the Metro Centre in October 2010. with the ability to install trading mezzanines. discounted by 10%. However, they will only deal with landlords Electricals In contrast, HomeSense have halted who are able to accept tenant only break Focus had continued their Genesis format, expansion as they absorb the latest units clauses in the fifth year, yet still offer an having started the programme by downsizing Having changed their name from DSGi back within their 24 store portfolio. Brantano will attractive incentive package. They are, to 15,000 sq ft in Congleton with the to Dixons, they are continuing to rebrand the open their third store in 2011 in Scarborough however, reported to have signed 17 new remaining space being let to M&S Simply portfolio, amalgamate stores by combining PC and more are planned by the year end. deals since September 2010. Food. They had successfully completed World and Currys as a dual-store format and their CVA period, and negotiated with most marketing the disposals of the surplus stores. Other bulky goods requirements for smaller landlords to pay rent monthly thereafter. The Megastore format is one that they are Having opened their first “at home” store in units include those from the tile retailers. They sold a package of six stores to Asda still progressing in key locations. They are Poole in 2009, John Lewis opened a further earlier this year and continue to downsize also trialling smaller dual-stores of 10,000 sq three similar stores last year and will be DIY larger stores but as we go to press the 178 ft providing there is the ability to install a full opening more in the year ahead, including store chain has fallen into administration. cover mezzanine. This expansion will to some Greyhound Retail Park, Chester. They have B&Q have made a cautious return to the also signed two High Street “at home” stores market, seeking opportunities for their Mini- 2010 & 2011 Unfolds in Newbury and Exeter. Warehouse format having recently exchanged contracts for new stores in Tamworth and QUARTER 2 - 2010 QUARTER 3 - 2010 QUARTER 4 - 2010 QUARTER 1 - 2011 House of Fraser are rumoured to be Friern Barnet. Wickes are also considering considering out-of-town stores of about opportunities, although both these retailers • Wickes open two standalone • DSGi returns to original • Best Buy stop selling electric • Blacks fail to reach kitchen and bathroom stores name of Dixons cars and withdraw from agreement over sale 50,000 sq ft split over two trading levels, and Homebase will continue to concentrate • Best Buy opens its first UK • Ocado floats on stock opening in Gateshead • Smyths Toys opens its first while also planning to identify opportunities on consolidation of their existing portfolios. store and sells electric cars exchange • Waitrose opens food and Scottish store • Hobbycraft sold to • MFI name resurrected two home format concept store • John Lewis announces new Bridgepoint Capital for more years after its collapse with in Meanwood, Leeds ‘at home’ stores than £100m a website: www.mfi.co.uk • Halfords intends to reduce its • JJB agrees its second CVA in • DFS sold to Advent for • TK Maxx double investment property portfolio by 15% two years but Easy Living £500m in Christmas advertising due to online success fails • Asda acquires Netto UK for to turn around disappointing • Staples UK are back in the • Focus disposes of six stores £717m subject to OFT sales black to Asda to raise funds approval, which was granted • Comet unveil wide ranging • Pets at Home intend to open • TK Maxx slows its expansion in Q1 2011 rebranding. 100 smaller format stores programme • JJB starts battling to turn • Series of profit warnings around from retailers “Corporative activity “More retailers signing up “Retailers worried about public “Sir Terry Leahy leaves Tesco continues” deals” sector job cuts.” and Sir Stuart Rose retires from Marks & Spencer prompting “Noticeably more “Developers securing more “Non-food sales in Outstanding Achievement requirements” sites to promote for pre-letting” supermarkets keep increasing.” awards from Retail Week.” “Retailers start to question how quickly there will be full recovery.”

Gillingham Business Park - Advice to LPA Reciever on asset management and disposal 16 17

extent be counterbalanced by the disposal As a number of original leases are Where landlords have not been able to tempt Leisure and Catering/Restaurant Uses of surplus stores that are not a part of the approaching expiry, adaptability/reusability national multiples on to retail parks in some rebranding or amalgamation programme. of older stock for modern requirements will cases, they are exploring deals with regional There are a number of properties that remain undoubtedly be called in to question and may retailers who are opportunity led. An example vacant following the demise of MFI, and Having opened nine stores since their first fuel redevelopment. is the expansion of “Frank’s The Flooring Allied Carpets, among others, nevertheless it opening at Thurrock in April 2010, Best Store” in the north east. An alternative is to is still difficult for some landlords to accept Buy will have opened their eleventh store While there are still a handful of larger space allow retailers to test the location, as referred leisure uses due to the inherent downward by Christmas 2011. Questions have been occupiers acquiring in the retail warehouse to earlier. Deals with such retailers are shift in rental profile and loss of the retail asked about whether the UK electrical sector market, trends of larger stores in the late becoming increasingly attractive to landlords planning permission. was ready for a new brand such as Best 1980s are now showing signs of shifting to who cannot afford the incentive packages Buy or whether they have simply joined smaller unit sizes. that some national retailers require for longer Retail park requirements from discount the established brands, struggling in a very term occupancy. gym and cinema operators continue to competitive marketplace. Tenant Mix be circulated and advertised in the Retail Park vs Roadside property press. Comet have continued to right-size their Tenant mix on a number of prime and portfolio and rebranded all stores with the new secondary parks has evolved through Some retailers such as Halfords have The rapidly expanding budget hotel sector logo. Despite poor trading in the recession they the recession, with changes to planning sacrificed retail park anchorage for roadside has been hailed by some as “the most are still acquiring or re-siting in selected towns. permissions being hard-fought on vacant prominence. This enables them to benefit dynamic segment of the UK hotel industry”. units. Retailers are considering locations from more affordable rents on solus stores These hotels enhance the viability of Maplin have continued their aggressive store that might have previously been in these locations. Halfords have also new development, by adding to the value acquisition programme and having opened four overlooked but where the financial deals increased their roadside presence through a that that might usually only be created at stores since January 2011 are showing no signs have become attractive. rebranding exercise following their acquisition ground floor level (e.g. Halfords/Travel of slowing down in the year ahead. of Nationwide Autocentres, which remains Lodge – Whetstone). In some instances, pre- separate to the retail format. letting upper levels to a hotel has enabled Development and Redevelopment developers to build the ground floor retail/ Other retailers such as American Golf and restaurant space speculatively although not It has been reported that the amount of space Home Bargains have also adapted their always with the hoped for success. This being developed for out-of-town non-food retail traditional acquisition models to include sector has also looked at new development is much reduced and this is noticeable in day- roadside locations. on “pod sites” within retail parks with a view to-day dealings with existing stock. Developers to sitting above the proposed retail/restaurant are looking at more opportunities at the bottom IN ‘n’ OUT have had new owners since August unit and making use of the retail park car of the cycle and consequently there are retail 2010 and hope to expand the 10 store car park after trading hours. Residual site values warehouse developments being promoted. service, MOT and valet chain. are, however, low but occupier and market These developments are edge-of-town or out- interest for the completed product is good. of-town and may include sites where there are existing retail warehouse facilities.

Gateshead - Team Valley Shopping Park – Asset management on behalf of Land Securities. The key to such development is occupier demand, as speculative development has never been a feature of this sector. Viability and demand for the finished product are equally important, notwithstanding site ownership where there is a lack of bank finance required to fund the land purchase.

While the food store operators are well known for developing new opportunities themselves, there are a small number of other retailers, such as Marks & Spencer who will consider development and holding the completed investment where necessary e.g. their flagship store to open at Cheshire Oaks. Stevenage - The Forum. – Asset Management on behalf of CBRE Investors. Amalgamation of Loughborough – Asset management on behalf of Merseyside Pension Fund. Letting to Maplin in August 2010. units to facilitate new Letting to Next. 18 19

Lease Flexibility retail warehouses, rather than widen Occupational Marketplace planning permissions. Tenants continue to seek flexibility to end leases if trade does not support their business As we forecast, some retail parks are a target plans. Tenants with good covenants are for redevelopment for foodstores, for example, Realistic Expectations more likely to be given break clauses because Derby, Meteor Retail Park and Christchurch, landlords assess the risk as being relatively Meteor Retail Park. At Ashford, Sainsbury’s Common themes in the Occupational Marketplace low in terms of them failing. Landlords are have demolished 35,000 sq ft of non-food both In-Town and Out-of-Town fighting back by requesting mutual break retail to allow their extension to create a clauses or a financial penalty if the break is 140,000 sq ft store. The number of “budget operated, especially where locations have the gym” requirements has been noticeable Landlord Differences Long Term Voids potential to improve again quickly. during the year and there are a lot more enquiries for children’s soft play areas. In The last few years have shown the different A significant number of former Woolworths Covenant Strength some cases, hotels are eyeing up suitable approaches that private property companies and MFI’s have remained vacant since sites that would normally have been the sole and institutional landlords have adopted. The early 2009 and are therefore still subject The last few years has concentrated all parties’ domain of retail warehouses. requirements are either driven by absolute to marketing, downsizing or planning minds on criteria for acceptable covenant ownership or the type of debt structure, where applications for a change of use. Given the strength due to current levels of retailer The acquisition drive of non-A1 uses such income becomes crucial. Many landlords are length of time which has now elapsed, the debt, the property and the terms of the lease. as Metro Bank and Paddy Power has seen a waiting for the market to return to ‘normal question is, can this space still be re-let if and Assessment is not necessarily straight forward, more relaxed approach towards alternative levels’ (whatever that means) with rental when the market improves significantly, or is based on historic trading and number of uses in town centres. Whereas five years ago growth off higher base rents, whereas tenants an element now unlettable unless alternative outlets. Where new businesses are looking one would not envisage a bookmaker opening believe that the current market is now the uses can be found? Out-of-town, the majority to take on vacant retail units, landlords are in pitches close to prime, we are now seeing realistic one. At present, top rents can only be of the Big W (Woolworths) units have secured seeking guarantees and rent deposits, however this throughout the UK. Coral the bookmaker secured and maintained with large incentive occupiers through subdivision, for example such financial instruments automatically locating opposite Harrods in Knightsbridge is packages, other than in the South East and Newark and Norwich. In town, many units create a cashflow problem for the tenant. The one example. London areas for prime locations. have been taken by the value retailers. There nature of these risks in terms of lettings may are, however, in excess of 300 units still vacant. require revised benchmarks. Physical Characteristics All eyes are on a number of struggling retailers as there is concern over who might occupy Alternative Uses Some of the physical attributes attached their units located in the weaker towns should to older properties both in-town and out- there be an administration. Not all retail space allows the alternative of-town are receiving more attention as it tenant to trade immediately without changing is still difficult to justify demolition and the planning permission, in fact it is almost redevelopment in the current market. invariably the case that a change is needed for retail warehouses. Negotiations are In the out-of-town market, some retail therefore “subject to planning” and we have warehouses are more than 20 years old noticed more and more public commentary and therefore issues such as condition and about the difficulty in obtaining permissions physical dimensions no longer suit current where there is demonstrable demand from a requirements, or allow efficient sub-division. particular occupier. This may be because of Haunch heights of less than 5.5 metres the recession but Lord Wolfson’s comments to impair an ingoing tenant’s ability to install a the British Chambers of Commerce in April trading mezzanine. 2011 reflect this frustration, as he called for the Government to overhaul the planning system One of the issues in-town, particularly in which he argued had hampered “every single older secondary shopping centres, is the business in the land at some stage”. number of adjacent vacancies. Much of the space is unlettable in its current form and Requirements for mezzanine trading floors therefore valuers and landlords may need need careful planning applications. There are to make significant write-downs in value in a number of local authorities throughout the order to create large space but at lower overall UK who appear to be happy to have vacant rental levels. 20 21

The combining of units in order to attract entering into administration as they Those retailers disposing of a significant negotiations is becoming the norm. Arcadia footfall drivers such as TK Maxx/Primark or were persuaded by a credible business plan. number of stores include HMV’s reported and Halfords have been high profile a supermarket can have a detrimental effect A number of landlords were not impressed 60 stores, Boots, JD Sports, Ann Summers promoters of securing capital payments from on the rent but the knock-on effect could and voted against. As we go to press it is and O2. landlords or new leases at reduced rentals potentially fill the vacant units alongside. unclear whether the Focus DIY fascia will be with many other retailers attempting to adopt saved following administration. We have recently seen trading updates for a similar strategy. Equally landlords are It is in a landlord’s interest to maximise the reduced profits issued by retailers such as seeing how they can maintain their strongest retained fit-out and condition of vacated units If retail failures continue in the year ahead then All Saints, American Apparel, White Stuff, occupiers while formulating strategies to in order to make them more attractive to the it is possible that this will be compensated by Mothercare, Carpetright, Game and Comet. It cover weaker tenants and potential vacancies. increasing number of temporary occupiers. the more successful retailers expanding into is notable that some of the higher end fashion the better units. In that respect the market is trends are now joining this list. Following The Deal Today Asset Management usually better off when the weak are replaced some 26 retail failures in 2010, retailers who by the strong. Artificial support for businesses have recently fallen into administration Our discussions with landlords suggest that We have alluded to yield stabilisation and past their sell-by date does not help these include Officers Club, HPJ Jewellers, Bennetts, current lettings on existing shops are still therefore improvements to value will be driven businesses and the towns they serve, nor does it Easy Living, British Bookshop & Stationers, seen as “tenant friendly” but tenants are through rental increases rather than yield shift. allow for new ideas to come forward. Harsh but Alworths and Oddbins. JJB have previously often viewing these deals as the new future. The days of owners being able to ride the yield perhaps true. been commented on but have just emerged There has been a noticeable change in the market are well behind us and we believe that from their second successful CVA. market over the last three years and there is hard asset management skills will come to the Which retailers are up and down? a question mark as to whether the old style fore over the next two years. TJ Hughes the Department Store are the deals will come back. In our view this will Some retailers are also altering their locational latest in a long list of retailers to enter into be the case in the best shopping centres and Since last summer, however, an increasing requirements, turning their attentions away negotiations with their landlords to secure retail parks but even now there will be careful number of owners appear to have been taking from the High Street and shopping centres, rent concessions, including monthly negotiations over lease length, potential for a longer term view, as evidenced by CBRE towards retail parks. Mothercare are a prime rental payments and even reduced rents turnover rents, capital incentives and whether Investors’ investment in The Forum, Stevenage example, having closed some 23 in-town stores in certain locations. rents are provided with a cap and collar at to facilitate a large unit for Next, creating real yet acquiring 12 out-of-town stores in the last forthcoming reviews. benefits and long term property performance financial year despite the recently issued Next, however, continue to be a strong in a South East town that many had written profit warning. performer with a 9% increase in full year Our discussions with tenants suggest that off because of poor demographics and a strong pre-tax profits to £515 million with turnover some landlords are taking an inordinate competing retail warehouse and food superstore As was the case last year, there continues to ahead by 1% to £3.45 billion. It is worth amount of time to secure deals or document out-of-town provision. be a hardcore of well established retailers, who noting that sales of Next Retail fell 2.3% the contract after terms have been agreed. seek to expand selectively on their terms; these whereas Directory Sales advanced by 7.1%. Some tenants question property investment It is interesting to note that the out-of-town include Next, Arcadia and H&M. Two user This perhaps demonstrates that catalogue and managers as to why one of their investment property market has generally sought to groups stand out as expanding across the board. online retailing is still progressing strongly funds deals with things simply and efficiently downsize units, whereas many in-town tenants Firstly the “budget gym” occupiers and secondly against physical retailing. and others seek different lease covenants are seeking to secure larger units. the discount retail sector. This is dominated and take their time. Each landlord and by the pound shops, including Poundland, Empty Rates tenant is benchmarking deals as they are CVAs, Pre-Packs and Administrations B&M Bargains, Home Bargains and 99p stores done and there is inevitably comparison including their new out-of-town format, Family As part of the coalition’s “tax grab” the empty with their peers. The market remains divided about the Bargains. It is possible that consolidation rates relief was downgraded from 1 April morality and long term impact of pre-pack might take place in this sector over the next 12 2011. Previously relief was capped at £18,000 There has also been continued questioning administrations and CVAs. Landlords are months, as a number of operators are either whereas occupiers will now have to pay as to whether rents will get back to where seeking greater control and it may become an based in the North or the South, with only rates on all vacant properties with a rateable they were in 2006/2007. We think that the area for legislation. The Miss Sixty CVA failed Poundland represented across the UK. value of more than £2,600. This has further best advised landlords have already looked in the courts with its promoters criticised in its increased the appeal of temporary occupation. carefully at their investment, lowered rental approach - the landlords won. JJB then caused Other retailers in expansion mode include expectations as appropriate and are now a storm by suggesting that their second CVA Brighthouse, Costa Coffee, Urban Outfitters, Store Portfolio Management following strategies to enhance the value was required before the March quarter day 2011. Apple, Superdry, Subway, Mint Velvet, of the property from where it dropped to They successfully achieved this on 22 March, Lush, Store 21 and Superdrug. In the A3 sector, Both landlords and tenants are under intense in Q4 2008. Alternatively, they will buy thanks to support from their shareholders and Mitchells and Butler, Prezzo, Frankie pressure to review their portfolios in order existing investments where there is asset by providing landlords, whose properties would & Benny’s, as well as Marstons are all in to maximise their position. Invoking tenant management potential, rather than relying on otherwise close, with acceptable terms. The the market. break clauses, stepping away from lease rental growth as the driver given consumer vote by landlords stopped a 250 store chain from renewals and entering into lease regearing and occupier sentiment. 23

In-Town Investment One transaction that made for £82.24million, at 6.1%; to become even more national headlines was the British Land purchased sought after in the short Unearthing sale of the Trafford Centre, Drake Circus, Plymouth for term, impacting further Manchester, by The Peel £235 million, at 6%. The on yields. This position is Group to Capital Shopping other major deal of 2010 saw unlikely to change until Centres for some £1.6 APG and Canada Pension the development of new the Deal billion. As part of the deal Plan Investment Board buy schemes returns, but this Peel did gain an estimated a 50% stake in Stratford will take many years and Keith Nelson on the 19.6% stake in Capital City Shopping Centre from is linked with retailers In-Town Investment market Shopping Centres Plc. Westfield reportedly for a feeling the need to trade price of £871.5million in fewer locations. That Other notable shopping at 5.8%. said, some schemes that Last year we concluded that centres that have been have been openly available demand for prime investment traded include Legal & Prices paid for shopping have not sold as they have General’s purchase of centre assets reflect been overpriced, and others properties would continue to Fremlin Walk, Maidstone, the continued strength placed quietly on the remain strong and this proved for £92million at 7.8%; of demand from both market have just as quietly to be the case. It remained Overgate Shopping Centre, institutions and property been withdrawn. difficult to obtain debt, as the Dundee, was sold to Land companies, for the best Securities in December centres. With a limited Some notable but more banks’ intransigence to lending for £141million showing development pipeline, secondary shopping centre on commercial property did 6.85%; Wereldhave Property the dominant regional portfolio deals completed not waiver. Nevertheless Corporation purchased schemes and those in major during the last 12 months, the number of investment The Dolphin Centre, Poole, city centres are likely including Hammersons’ transactions continued to increase throughout 2010 and we have seen this trend maintained in Q1 2011. Over 30 shopping transactions completed in the second half of 2010 and in Q1 of this year 14 shopping centre sales have completed.

Sevenoaks – Blighs Meadow 2010 – Sale of shopping centre investment. 24 25

Shop Property % Yields central London and some ten years, due to financing, worldwide investors and of the other major regional either cannot sell or achieve re-affirms the Capital’s cities, many investors have high yields. place in the eyes of foreign Dec 2006 Dec 2007 April 2008 Dec 2008 Apr 2009 Sept 2009 Oct 2009 Feb 2010 Apr 2010 Apr 2011 remained on the touch line. investors as a safe place to

Prime High However, we believe that invest during the worldwide 3.75 - 4.25 4.75 - 5.50 5.00 - 5.75 6.00 - 6.50 5.25 - 6.00 5.50 5.00 5.00 4.75 4.50 Street 2010 did not see a deluge there will be increased economic crisis. of stock coming onto pressure to accept shorter Secondary 5.00 - 5.75 6.00 - 7.00 6.50 - 9.00 8.00 + 8.00 + 10.00 + 10.00 + 10.00 + 9.00+ 8.00+ High Street the market as some term tenancy arrangements, There are, however, two had predicted given the especially in shopping real concerns for investors Prime Shopping 4.00 - 5.00 5.00 - 6.00 5.50 - 6.50 6.50 - 7.50 7.00 7.00 6.00 6.00 6.00 5.50 - 6.50 Centre pressures on the banks to centres, whilst the tenant in the retail property raise finance. Some forced has the upper hand in sector. The first is any Secondary 5.00 - 6.00 6.00 - 7.50 6.25 - 8.00 9.00+ 9.00 + 7.50 + 9.00+ 9.00+ 9.00+ 8.00 + Shopping Centre sales have taken place, but negotiations. The shrewd significant increase in this has not happened to investor is already taking a interest rates, which could the extent that one may positive view on this issue undermine any hope of purchase of the St Martin’s Kettering (£39.67m at NIY of they continue to be cheap, have expected. We have, relying on tenants to renew a return in confidence in Portfolio at a price of 8.0%), Boscombe (£13m at however, in the current however, seen a number their leases in the stronger the occupational market, £208.41million that NIY of 9.52%), Cumbernauld economic cycle this is of Irish investors bringing trading locations. although this threat has included Centrale, Croydon; and Macclesfield (£24.5m high risk. product to the market, recently subsided. Monument Mall, Newcastle; at NIY of 8.23%), as well as which is undoubtedly as a One area of concern for Cathedral Lanes, Coventry; Kandahar’s shopping centre Location is all important result of banking pressures. the future is the tendency Secondly, retailer’s Kings Mall, Hammersmith portfolio. However, the and as the UK population We believe that the Irish to have agreed fixed performance is now and The Spires, Lichfield. available stock is not of the starts to feel the effect of Government distressed rent increases or have under severe pressure as The Mall Corporation highest quality and this is Government fiscal policy property fund, NAMA, benchmarks which are the effect of government Portfolio which included reflected in the higher yield it is likely that the flight to will be forced to release not property related. cutbacks and the squeeze Falkirk, Gloucester, profile of those centres the regional centres and more property onto the Such arrangements could on consumers begins to Romford and Southampton being marketed, generally the South East of England market this year. Whilst produce over-renting and make itself felt in the was sold at an agreed price above 7.5%. As an will continue. This does this may reduce some of hit investors just at the time High Street. of £135.9 million in June example the St. Marks not augur well for property the pressure on supply, it they wish to sell at some 2010, representing a net Place Shopping centre in in the regions and we are is unlikely to have much time in the future. Although Consequently, covenant initial yield of 7.5%. The Newark-on-Trent has just likely to see some shopping impact on pricing, especially a guaranteed rising income strength will be more CReAM Portfolio which come onto the market at an centres fail completely as for better quality assets. stream is not to be ignored, important than ever as included Bramley, Burgess asking price of £24million has already happened in Furthermore, whilst rental the potential downturn in many investors could face Hill, Fareham, Erdington reflecting a Net Initial Yield the US. growth prospects remain value towards the end of the increasing voids in their and Wallsend was sold of 7.264%. poor in most locations lease could be significant. portfolios as more retail at an agreed price of £53 The Government has the attractiveness of well Arguably, valuers should be failures materialise. The million in November Demand for prime High stressed the importance secured assets will remain. amortising the over-rented empty rates regime will 2010 representing a net Street shop investment of bank lending, however, element over the lease continue to drive demand initial yield of 8.35%. The properties has also remained credit within the property There was some worry that term but this exercise rarely in one direction – towards Sapphire Portfolio that strong, especially from arena is still hard to come with the introduction of the seems to be undertaken at prime. Prime stock is included Burnley, Queen’s private investors. High by. Only those well funded new accounting standards the current time. therefore likely to retain Arcade, Cardiff and Harvey Street shops and shopping investors are able to enter shorter lease lengths would its attraction whereas Centre, Harlow was sold parades can provide well the market. Some investors reduce demand for property secondary will show by administrator Grant secured income that offers have questioned whether investments. Many retailers Growth in Central London further weakness widening Thornton for £145 million at the smaller investor a now is the right time to have been pressing for 5 has continued unabated. the yield gap. However, a yield of 7.75%. relatively safe place to buy and whether the stock year terms or break options Occupational demand has this yield arbitrage could deposit cash. We believe that has come onto the and agreeing shorter underpinned a stronger provide an area for real Q1 of 2011 has seen more that we will continue to see market is actually attractive. commitments. Where single than ever investment opportunities in secondary shopping centre stock come healthy demand for these Many consider that there property investments have market where equivalent retail, notwithstanding the onto the market. Schemes assets as returns from other have been very few real such short term leases, yields close to 3% have greater risks. currently being openly investments remain poor. opportunities and with there is reluctance from been paid on Bond Street. marketed include Perth We do see the attractiveness income growth prospects investors. Investments that This illustrates Central (£30m at NIY of 8.5%), of secondary shops as being limited, other than in are secured for less than London’s attraction to 27

Out-of-Town Investment There had been some striking examples of by the end of Q1 2010, an air of caution where investors had profited from significant seemed to have returned. Investment activity Bursting yield compression. London & Stamford was slightly reduced in Quarters 2 and 3 had purchased the Racecourse Retail Park, of 2010 albeit, demand appeared to remain Aintree in June 2009 from Land Securities, strong and yields remained unchanged. for £60.92 million, a net initial yield of about There was the usual flurry of activity in Bubbles... 8.5%, and had brought this to the market in Q4 2010, perhaps with pressure to spend Spring last year seeking circa £100 million. allocations. This has been sustained in Q1 We had doubts as to whether or not the 2011. It is clear however that yields have market would support pricing at that level now levelled off despite the high levels of Not Just but in September 2010 it was announced demand for this asset class and the lack of that The Crown Estate had purchased this opportunities coming forward in the market. investment for £101.3 million, representing Yet! a 5.4% net initial yield and a £40 million The market has been active but it has been return for London & Stamford. notable that the sector “giants”, namely British Land, Standard Life, Aviva, Prudential and John Shuttleworth on the So, in the previous 12 months, yields for Land Securities have all been relatively quiet. Out-of-Town Investment market prime retail warehouse parks had moved In contrast, the Crown Estate, although not down from 8-9% to 5.3% at that point, but new to the sector, have been particularly This time last year we reported on a very buoyant retail warehouse investment market. This had been driven by a number of factors including negligible returns on cash, poor returns on gilts and equities, a weak pound and high inflows of money to the pension funds. Strong demand, coupled with the limited availability of prime stock, had forced yields significantly downward.

Barrow in Furness – 2011 – Acquisition of a Retail and Leisure Development let to B&Q and DW Sports on behalf of PHF Investments Ltd. 28 29

active in the last 12 months, following a The sector specialists have very clear criteria diversification strategy - investing in the that suit the current market place, namely: sector through the purchase of Victoria Retail Park in Nottingham (£56.8 million/5.42% • A lot size of £15 million to £30 million net initial yield), Racecourse Retail Park in Aintree (£101.3 million/5.4% net initial • Rents of up to £20 per sq ft yield), Apsley Mill Retail Park in Hemel Hempstead (£35 million/5.75% net initial • Open A1 planning preferable but also yield) and Ocean Retail Park in Portsmouth bulky goods (£60.85 million/5.87% net initial yield). This represents a total investment in this sector • Identifiable and achievable asset in the last 12 months of over £250 million. management opportunities Threadneedle have been the most active of the funds, while most others have ticked over The acquisition of retail park investments with one or two smaller acquisitions. Perhaps where rents are below £20 per sq ft is possibly the most acquisitive of all have been the the single most important factor. From this sector specialists, particularly Metric Property level, growth can be contemplated. Without Investments but also Pradera and LXB, all of further yield compression, rental growth whom have acquired a number of retail park through active asset management is the only investments and much of this having been way to achieve satisfactory returns. sourced “off market”.

Out-of-Town Retail % Yields

Dec 2006 Dec 2007 April 2008 Dec 2008 Apr 2009 Sept 2009 Oct 2009 Feb 2010 Apr 2010 Apr 2011 Barrow in Furness – 2011 – Acquisition of a Retail and Leisure Development let to B&Q and DW Sports on behalf of PHF Investments Ltd.

Shopping Parks 4.25 - 4.75 4.75 - 5.00 5.00 - 5.25 6.75 - 7.00 6.75 - 7.00 6.50 - 7.00 6.00 6.00 6.00 5.00 - 5.25 In more general terms, the top prices are paid is Ignis’s proposed acquisition of the Purley for prime/dominant retail parks with open Way Centre in Croydon from AVIVA for Open A1 4.25 - 5.00 5.25 - 5.50 5.25 - 5.75 7.00 - 7.50 7.00 - 7.50 7.00 - 7.25 5.75 5.50 - 5.75 5.00 - 5.50 5.25 - 6.00 A1 planning permission, a high street tenant around £35 million. This would reflect a Retail Parks line-up or the prospect of achieving such a net initial yield of around 5.3% and would

Bulky Goods 5.00 - 5.75 5.75 - 6.25 5.75 - 6.75 8.00 - 9.00 9.00 8.00 - 9.00 6.50 - 7.00 5.75 - 6.25 5.75 - 6.25 5.75 - 6.50 profile and lot sizes of up to £30 million. represent one of the lowest yields paid post Retail Parks the economic recession. The 60,000 sq ft There remains demand for prime bulky scheme is let to TK Maxx, Argos, Solus Stores 4.75 - 5.25 6.00 + 6.00 + 8.50+ 8.75 8.50 - 9.00 7.00+ 6.00 - 7.00 6.00 - 7.00 6.50 + goods retail parks at higher yields but tenant Hobbycraft and Mamas & Papas at rents of line-up is crucial, with covenant strength £30-£40 per sq ft. being looked at very carefully. Demand also remains strong for stand-alone retail The retail warehouse investment market warehouse units, particularly from private is strong at present. Keen prices are being investors given the more manageable lot sizes paid, reflecting a high level of demand for of up to say £10 million, and particularly this asset class and lack of opportunities where the property is occupied by one of the in the market. With yields having levelled stronger covenants on a long lease of 15 years off leaving rental growth as the driver of plus and perhaps with indexed or fixed rental performance, it is difficult to see how this increases. The demand for and value of can continue against a backdrop of the shopping parks has still not truly been tested Government’s austerity measures to repair in the market. These investments were once public finances. This is bad news for the most sought after but are now viewed rather retailers and also the owners, in terms of differently, given the lot size and the level their prospects for rental growth. To quote of rents on schemes of this nature, at say one fund manager recently “… you can’t £45 per sq ft plus, and where it is difficult to help but feel that we are currently living in foresee significant rental growth from these a bubble and unfortunately we don’t seem levels for the foreseeable future. Although capable of realising or acknowledging this not a true shopping park, the closest example until it bursts”. Marlow – 2010 – Acquisition of a Waitrose food store on behalf of a private investor. 31

Professional This reflects not only nature of such incentives. constraints or profiles for the continuing lack of Detailed forensic analysis of long, and as King Canute Tenants rental growth following open market transactions is demonstrated, the tide of the the tumultuous events of increasingly the order of the market cannot be stopped. late 2008 and the ensuing day but agreement between recession but also the growing protagonists on correct Incentives are inducements on Top acceptance by landlords of the analysis remains a rare beast. and skew market rents. inevitability of nil increases at Equally they are part of review in many commercial The level of incentives is the market. Even with Ian Campbell considers some markets. It also reflects an undoubtedly dependent alternative methods of fixing current issues in the field of rent increase in the number of upon the term that a tenant future rents and analysing reviews and lease renewals. regearing and deal lead rent is willing to commit to. A incentives, what is always review negotiations to suit landlord will obviously required at any moment in both sides in the current pay more to incentivise an time is the benchmark of 2010 saw the number of austere market conditions. occupier to sign up to a 15 what is the true market rental year lease than he would for value. Everything else flows applications to the Dispute For those reviews which are a 5 year term. Logic must from that simple question but Resolution Service of the RICS being prosecuted the age old dictate therefore that in the methodology behind the for commercial rent disputes arguments of discounts for the current market at least, answer becomes ever more restricted user and alienation devaluation of incentives complicated. decline from over 10,000 to clauses still exist. As is always over the minimum its lowest level since the dark the case when markets guaranteed term must be Lease renewals and early become depressed, the the correct approach. regears have also opened up days of 1996, with only 4,442 inclination is for Arbitrators the potential for tenants to applications being made. and Independent Experts The question that the negotiate rent free periods to award greater discounts property profession and and other incentives which to take account of such valuation fraternity have to would have been unheard of perceived disadvantages. In cope with is how to interpret in similar scenarios 5 or 10 addition greater attention is this in arriving at the market years ago. Notwithstanding being paid to the issue of the rent without fine or premium. this tenant power, there is hypothetical assumed term, an attraction to landlords particularly as the typical As history tells us, markets in securing continued assumed term of 15 years do not support artificial occupation and rent on their falls out of sync with the shorter lease terms prevalent in the market.

The method of analysis of incentives granted in respect of comparable evidence, ever a source of disagreement between the parties, becomes increasingly important as the levels of such incentives in a depressed market have risen. This problem has been further compounded by the use of confidentiality clauses by landlords to conceal the exact level and Stockton Heath - 2009 – Rent review on restaurant and shop - Victoria Square, Stockton Heath on behalf of Capital & Provincial. 32 33

properties following lease A similar situation is What is certain is that the decision from a judge not than the court process of upward only rent reviews expiry, in conjunction developing to a lesser extent number of traditional rent experienced in commercial but speed of decision as a result of market forces. with a reasonable length of in the out-of-town market reviews to open market rental property disputes. making by Arbitrators and term, reflected as it is in a with most recent leases value will diminish over the Independent Experts leaves However, there are compensatory yield shift. having been granted for next decade. Interestingly, PACT should be considered room for improvement. unsurprisingly no indications terms of 10 years only or with the likelihood of rising and promoted effectively as of a willingness on the part of So what lies ahead for the 15 years but with a break inflation and increasing it is a much better and more With lease renewals tenants to divest themselves traditional rent review at 10. This is except for the interest rates, we are already efficient option for dispute becoming far more of that other artificial practitioner who had supermarket sector where noticing a number of retailers resolution at lease renewal, prevalent, the opportunity barrier to true open market become accustomed to it suits retailers to raise reviewing, and in some cases but only when both parties for the tenant to take forces, the protected right four reviews and a renewal money on a bond type basis even abandoning, this type of are familiar with the process advantage of an upwards of renewal under the 1954 within the traditional 25 year over longer terms in their fixed review. On the upside, and trusting in it. At present and downwards rental Landlord and Tenant Act. lease cycle. sale and leasebacks deals. the number of lease renewals a ‘better the devil you know’ adjustment is now available By retaining the guarantee In addition the monopoly to be negotiated will increase. sentiment prevails through every five years. Without of security of tenure but Average lease lengths trading of a good site against However, the jury is out on the industry. However, the need for Government effectively achieving upwards continue to fall in all competition is another whether the current court as with rent reviews the intervention which they and downward rent reviews markets. IPD calculate reason why supermarket system is geared to deal with dispute resolvers must had demanded, tenants through 5 year terms, tenants that the average 2009/2010 leases are usually for 25 this potential upsurge in what play their part. Costs are are gradually removing are now benefitting from the lease lengths are 7.7 years years and can still be for as is already a lengthy, convoluted usually appreciably lower themselves from the yoke best of both world’s. (high street retail), 8.1 years long as 35 years. and expensive process. (shopping centres) and 11.5 years (retail warehousing). To compound this situation, The PACT process was designed As a direct result the simple on renewal in the current to provide a more user friendly, number of reviews to be market, tenants are cheaper and quicker method prosecuted, whether there seeking to control their of resolving impasses between are increases or not, will future rental outgoings by the parties at lease renewal. continue to fall. In the in- replacing reviews to open Take up of the procedure has town market, typical lease market rental value with been relatively low. Unless lengths over the last 10 years RPI increases, subject to the dispute can be limited of 5 years, or 10 years with caps and collar, or simple to the level of rental on the a break at 5 will mean very percentage increases. basis of an agreed draft lease, few reviews being negotiated, the parties are continuing to whilst the customary 25 year As to who is likely to favour the court process. This leases that were granted in benefit from this shift to is notwithstanding the extra the 1980’s are now a thing of indexation, we shall leave cost, delay and the greater the past. to the crystal ball gazers. possibility of an unsatisfactory Woking Homebase - 2009 – Rent Review of Homebase, Woking on behalf of J Sainsbury

Prescot – 2011 – Rent review on Tesco, Prescot on behalf of Brookhouse Properties Limited Southwark – 2010 – Rent review of Decathalon units, Canada Water, on behalf of Conrad Phoenix Properties 34 35

Food Superstores and Supermarkets Powering Majors

As for last year, the food property market sector has continued to grow and strengthen with occupiers racing for space in stark contrast to the rest of the retail market. The majors have powered ahead by adding new floor space and growing sales despite planning uncertaintity and increased competition.

The efficiency and drive the restaurant to the weeks to March 20th 2011, of the food store operators home kitchen via the growth rate on food sales has to be admired despite supermarkets who have slipped to 2.6% compared to the criticisms from some been keen to accommodate 3.9% the previous month. quarters on their dominance this austerity factor. With inflation at 4% during of the market and their sales this period, it is the first of below-cost alcohol! Their Nevertheless, it is not all time since July 2009 that successes are at levels which one-way traffic. As at the 12 market growth has fallen their non-food colleagues behind the inflation rate Convenience the next five years. Whereas Supermarket share can only marvel at and in the food sector. Of the Waitrose used to be a brand dream of. big four, Morrisons was the The ongoing direction of of rarity, this is now a name 12 weeks to 12 weeks to Change food retailers is to intercept 21 March 2010 20 March 2011 only one to grow its share that pops up in places not In property terms, the real up marginally to 12.2%, the customer at source. considered two or three £000s % £000s % % opportunities come from Sainsbury’s was static at Expansion has not focussed years ago. As an example, 28,802,090 30,504,610 2.4 several quarters. This Total Till Roll 16.3% whilst Tesco and on new large store openings following on from Marks & 22,197,440 100 22,785,540 100 2.6 includes convenience stores Total Grocers Asda were both fractionally and existing store extensions. Spencer’s expansion into 21,670,590 97.6 22,255,110 97.7 2.7 in local parades, in well Total Multiples down to 30.2% and 17% Much of the growth has been service stations, Waitrose are 6,717,504 30.3 6,874,633 30.2 2.3 visited community centres Tesco respectively. through smaller formats and to build on their Welcome 3,804,487 17.1 3,884,246 17.0 2.1 such as hospitals and petrol Asda convenience stores on the Break convenience 3,607,663 16.3 3,717,831 16.3 3.1 filling stations, extensions Sainsbury’s Tesco is poised to be fastest doorstep of the customer. store initiative. 2,687,725 12.1 2,770,446 12.2 3.1 to existing stores, district Morrisons growing global retailer with The business model of 1,289,303 5.8 1,530,921 6.7 18.7 centres and revised town Co-operative compound annual growth just 5 years ago, when the Similarly, the Simply Food 370,668 1.7 12,489 0.1 -96.6 centre schemes where Somerfield* rates of 7.5% between 2010 customer was required to store format of Marks & 917,659 4.1 971,421 4.3 5.9 shelved shopping centres, Waitrose and 2015. travel to a dominant area Spencer is growing both 1.8 422,648 1.9 4.2 reflecting yesterdays bubble, Iceland 405,620 store, has been reversed. through direct company 706,645 3.1 14.8 can no longer be justified in Aldi 615,739 2.8 So for the future, more of efforts and also the 12.1 viability and demand terms. Lidl 506,003 2.3 567,121 2.5 the same but the existing A good example is Waitrose, franchise alternative which Netto 154,327 0.7 149,758 0.7 -3.0 traders are going to roll up who has launched its currently has 194 stores The severe economic Farmfoods 126,164 0.6 140,888 0.6 11.7 their sleeves higher than “Little Waitrose” fascia and with this fascia. downturn has perversely Other Multiples 467,728 2.1 506,062 2.2 8.2 they have before as the is planning to build a 300 helped by redirecting Symbols & 526,851 2.4 530,435 2.3 0.7 competition for market strong convenience store The Co-op are firmly on Independants the consumer from share intensifies. estate with this format over the scene following their Source: Kantar Worldpanel 2010 * Acquired by Co-operative 36 37

Somerfield acquisition and its There are also two drive- whole shopping trolleys successful integration. They through services at Tesco to be marked through an are a serious convenience Extra sites in Baldock and electronic cash point and store competitor and Romford where customers deliver an instantaneous bill. following the opening of are able to order their their branch in the Strand, produce online and drive to Competition and Planning London, now boast a store the store to the collect it. in every UK postal district. On the planning front, They intend to open 300+ Marks & Spencer is offering the abandonment of the new shops in the next three its “Shop Your Way” multi- “need test” will open up years. This will be supported channel offer in 144 Simply competition. Last year, by a rationalisation of their Food shops. Last year they Sainsbury’s secured planning head office and central signed a lease on their new permission to develop a full stock management system dedicated e-commerce sized store, immediately which they claim will have warehouse which will come opposite an existing modern the ability to scale up the on stream during the course Tesco full sized store at business to some 4,000 stores. of 2012. Bognor Regis. Both sites were out of centre but Alternative Shopping Ocado recorded a gross consent was granted on the sales uplift of 24.7% in the 12 understanding that the real “Pick and Collect” is a phrase weeks to February 20th and competition would be for now entering the English launched its first non-food food sales and would not Marlow – 2010 – Acquisition of a Waitrose food store on behalf of a private investor. language and in May 2010 lines at the end of 2008 with have an impact on the town Sainsbury’s began trials a range including table wear, centre which has evolved store. Instead Trafford full offer supermarkets exist service provision, ethics and of this facility in ten of its toys and gifts, moving away into a strong non food- Council granted planning alongside or opposite level of customer care. stores. Some would argue from Waitrose as its sole discount format. permission to Tesco on land each other. this is simply following the provider. However, sustained just down the road adjoining Discounters footsteps of Tesco with profitability remains elusive. By contrast, at Old Trafford, Lancashire County Cricket Expansion into non-food their dot.com “dark stores” the White City Retail Park Club, who have agreed to pay areas continues apace, often The discounters’ growth, which they currently No doubt technology failed to secure a consent the private members cricket unchecked by the planning which began rapid operate in Croydon, will soon be improved for the regeneration of the club a substantial sum to system coupled with some expansion as at three years Aylesford and Greenford. sufficiently to allow existing scheme for a food upgrade their facilities in a local authorities keen to ago, has been cooling off. bid to retain international maintain expenditure in Netto have withdrawn from cricket at Old Trafford. their boundaries. In town the UK having sold its entire Supermarket Statistics centres this is not of concern portfolio to Asda Wal-Mart of Protection remains an but in out-of-town stores it nearly 200 stores at a price

No. UK Stores Total sales area Opened in the The next 12 months UK sales Profit important ingredient in can reflect the worst type of of £778 million in May 2010. last 12 months % increase % increase the food property market, planning failure and damage Even here, the Competition Tesco 2545 £44.57bn £3.7bn (as of 19/4/11) 5.5% increase 7.8% increase especially where Local to town centres. Commission recommended

Sainsbury’s 958 68 supermarkets and 4.7% increase Authorities have their own to the OFT that 47 of the (as of 27/2/10) convenience stores, plus 24 extensions. priorities. However, it is There is still room for the newly acquired Netto 1.353m sq ft likely we will see more direct upmarket food store retailer stores should be disposed Morrisons 439 12.267m sq ft 15 new stores. 400,000 sq ft Intend to open 30 new £16.5bn £874m competition similar to that at who offers service and of. The majority have found (as of 30/1/11) stores. 600,000 sq ft 7% 1.8% increase Bognor Regis, which in turn quality. Waitrose and Marks new homes. Asda (Walmart) 371 Acquired Netto but to sell 900,000 sq ft (as of 30/1/10) 47 of those stores. 1.2m sq ft may well alter the dynamics & Spencer have always held new space of the food superstore such a tag. Another group Aldi saw its 2008/9 Co-Op 3000+ Now represented in every 300+ shops in the next £6.9371bn £81.6m (as of 2/1/10) postal district in the UK 3 years. 8% increase market and undermine the familiar in the North but £93million pre-tax profit following their opening in the Strand monopoly position that not in the South, is Booths. reversed into a £50million

M&S 690 including 350 15.4m sq ft £9.536bn £702.7m this sector has enjoyed for They continue to expand loss in 2009/10 and Lidl (as of 28/3/10) Simply Food stores. 5.2% increase 0.4% decrease many years under the need with recent acquisitions in have had 3 UK Managing Waitrose 238 20 new stores including 3 £4.97bn Operating Profit: £274.9m (as of 29/1/11) relocations. Selling space 9.8% increase 3% increase test. Indeed, there are now Hale Barns and Media City, Directors in the last 2 increased by 5.7% at least 15 locations where Salford, with their focus on years. Nevertheless, 38 39

performance has returned food retailers’ agenda and Food Requirements in Size Terms* recently and the discounters coincides with increasing are continuing to grab use of internet ordering and Location Min Area (sq ft) Max Area (sq ft) market share. Aldi and Lidl delivery techniques. Marks have achieved double digit & Spencer are leading the Tesco Extra Strategic 70,000 170,000 growth, and Lidl reached an environmental cause and as Tesco Standard 25,000 70,000 all time record market share we go to press are opening Tesco metro In Town 8,000 15,000 of 2.5%. in Sheffield a store of 12,400 Teco Express Convenience 1,000 4,500 sq ft which they claim is Sainsbury’s Strategic / Standard 40,000 140,000 Rental Values the most sustainable outlet Sainsbury’s Local Convenience 1,000 4,500 they have ever built. This Morrisons Strategic 25,000 70,000 Unfortunately, in such a is with the aim of becoming Morrisons Local Convenience 1,000 3,000 controlled market, most the world’s most sustainable Asda Strategic / Standard 20,000 140,000 rental evidence is restricted major retailer by 2015. Co-Op Convenience 2,000 18,000 to Arbitration Awards, M&S Mainline 30,000 150,000 Independent Expert Prescot – 2011 – Rent review on Tesco, Prescot on behalf of Brookhouse Properties Limited Tesco are building carbon M&S Simply Food Convenience 7,000 15,000 Mainline 15,000 40,000 Determinations and sale footprint neutral stores. Waitrose Waitrose Convenience Convenience 3,500 5,500 and leasebacks. The highest break back to between £30 Their first was in Ramsey attraction, coupled with Waitrose Food & Home Trials 25,000 35,000 rent yet to be achieved in and £35 per sq ft for the very these returns. and opened in December * figures are correct as of 11 April 2011 the UK is for the Sainsbury’s best examples. 2009 and their second at Chiswick, where the With retailers still opened in February this year arbitrator awarded £33 Investment dominating the development in Bourne, Lincolnshire. Not Tesco’s redevelopment food stores on stilts above per sq ft. This is an market there appears to to be outdone, Sainsbury’s, of the Ellesmere Centre, car parking is becoming increase from the previous Again, as we reported last be an endless supply of in their Durham Store, have Walkden in Manchester, more popular as retailers Arbitration award at £30 per year, the bond qualities of properties coming into the built an extension which which opened in September learn how to squeeze into sq ft which some observers the food superstore market investment market on sale they claim has reduced the 2010. This 180,000 sq ft restricted town centre sites. mistakenly felt was over- have proved an attractive and lease backs. Despite total carbon footprint of behemoth has become the Non-conformity to achieve pitched. This demonstrates magnet to investors. Fixed this activity, there still is not the whole store. The race town centre. Raised on success is becoming almost that where food retailers can increases rather than open enough to satisfy demand to be the most sustainable stilts above a car park which as important as conformity to monopolise their catchment market rent reviews are now for this type of product and supermarket is on. has 936 spaces, providing a a standard store was 20 years with limited competition, common or by reference hence yields have continued relatively low parking ratio ago. Flexibility is beginning the trading potential and to RPI/CPI benchmarks or to fall despite the poor The extent to which asset of 1:450, it also includes to creep into the food hence property values percentage increases. In current economic market. management will be taken about 30 shop units in superstore vocabulary. remain strong. essence, this converts the Equally, rental values have by the food store operators support comprising a further transaction from a property continued to show growth. can be demonstrated by 250,000 sq ft. Putting large The best food stores, in deal to a corporate bond major conurbations with purchase with yields for the Asset Management and strong catchments, are best in the region of 4.5%. Sustainability Conclusion securing in excess of £25 per sq ft. Elsewhere, £20 Pension funds, property Asset management is as Growth in the food retail property market not only reflects the security of this type of business per sq ft plus is common. companies and private much a focus as it is for other in an economic downturn but also strong management and a significant ability which exists Even secondary stores are trusts have been seeking forms of retail investments, within all the companies which operate within the UK. However, on the food superstore side in the mid-teens, alongside supermarket investments with extensions and lease of life, much of their business is protected through the restrictive planning regime and, the best discount stores at with urgency. With interest regearings popular both with therefore, it will be interesting to see if the Competition Commission’s quest to open up this level. However, on rates at 0.5%, even a low the tenants and landlords as the market will have any impact on the much more restrictive practices promoted by the the concessions side, the yield of 4.5% shows a there seems to be money to Government’s PPS4 policy issued on 31 December 2009. pattern is varied. Rents can significant uplift in return be made on both sides of be as low as £5 per sq ft in from money being held the coin. Whether yields have now fallen too low in the investment market is a question that will be local parades but in central on deposit at 1%-3%. The asked, but the last 20 years of low yields for supermarket property have proven to be well London, overall rental rates security offered at this Sustainability is now moving rewarded, both in terms of security and rental growth, and we do not see this position changing from zoned agreements stage in the market is the to centre stage of many in the foreseeable future for good quality prime property. 41

Town Planning From Crisis to Turmoil In last year’s Spring Report we pointed to the clear and urgent need for radical changes to the planning system if it was to lend any support to the economic recovery.

The Big Society and Localism

Those of us who have to navigate the system have become rather tired of the last Government claiming all was well, when almost all active participants – be they applicants, planning authorities, consultees and most stakeholders - knew it was, and still is, collapsing under the weight of both policy guidance, the bureaucracy of plan-making and the administration of applications.

The Conservatives’ pre-election Green Paper at least openly acknowledged that the planning system was “broken” and needed radical overhaul. However, and as we highlighted in last year’s Spring Report, some of the ideas in this Paper were aimed more at winning votes in traditional Tory heartlands rather than necessarily promoting the sort of radical surgery the system needs.

The election of the Coalition Government in May 2010 saw the arrival of “The Big Society” and, of course, the concept of ‘Localism’. In terms of the planning system, Localism takes forward some of the key elements of the Green Paper – particularly those that aim to reduce central government intervention as well as the need to promote greater community engagement and empowerment in planning. Thankfully, it also seems to have dropped some of the more radical ideas like third party rights of appeal.

Many in the development community are understandably concerned about the potential impact Localism may have on new development. Despite the assurances Ministers have endeavoured to give, the overwhelming majority of practitioners and commentators believe that Localism is inherently anti-development and has been described, by some, as “institutionalised NIMBYism.’

Saracens Rugby Club – Submission of planning application for refurbishment and development of existing Barnet Copthall Athletics Stadium to provide new ‘Community Stadium’ for both athletics and Saracens Rugby Club 42 43

Perhaps in response to this and in recognition of the simple fact that Localism is unlikely to fully recognise – and provide for - the wider development needs of communities, the past few months has seen the Government trying to reassure the development community that it is ‘pro-growth’.

A pro-active planning system

Chancellor George Osborne’s Budget Statement refers to the need for a more pro-active and pro- development planning system that should encourage rather than frustrate development. He has proposed a series of measures – including:

• 11 Enterprise Zones in areas where Local Enterprise Partnerships (LEP) are in place and plans for a competitive process for future Partnerships to bid for up to a further 10 EZ’s. Although the concept of an EZ may well encourage investment in areas most in need of it, much will ultimately depend on the quality and skill of the LEP promoting the EZ. Ultimately, however, the success of these areas will depend on the willingness and ability of the private sector to invest in these areas at a time when development finance is tight. The risks are likely to be perceived to be relatively high, and there may be alternative more attractive investment opportunities Motor Industry Benevolent Fund (BEN) – Lynwood, Sunningdale available elsewhere. Planning advice and planning application for redevelopment of existing care home to provide Continuing Care Retirement Community (CCRC) on Green Belt land.

If, or when, development were to occur in these Zones then due regard will need to be given to • Speeding up applications and appeals – the Minister has promised a 12 month guarantee for potential adverse effects that this might have on adjoining areas and town centres nearby. the determination of applications and appeals. This is laudable - in theory. However, there is currently little detail on how this will be achieved and how any such initiative will not cause the • A presumption in favour of sustainable development – it is encouraging that the Government sort of perverse behaviour by planning authorities that the previous Government’s development has explicitly stated that the default answer to growth and development should be ‘yes’. However, control targets led to where decisions on some applications were being taken not on merit but until we know how ‘sustainable development’ is defined the presumption remains something of a purely to satisfy time. hollow notion. • A pilot scheme for Land Auctions is also proposed. This will potentially allow local planning • A new streamlined pro-growth national planning policy statement - anything that slims down authorities to acquire land and grant consent and, in doing so capture the uplift in value. It is the welter of current national planning policy guidance has to be welcomed. We look forward initially proposed with public sector land and could be extended to land in private ownership to seeing how ‘slimmed down’ the final document is when it is published later this year and – although we are sceptical about landowners being willing to sell at a discounted price in the whether this well, in practice, simplify or streamline the process in the way the Government knowledge that consent could be granted in due course for a use generating a higher value. hope or whether its brevity will lead to further uncertainty. • The Government is also to consult on changes to allow more flexibility in converting existing • Business-promoted neighbourhood planning – in keeping with the proposals for neighbourhood commercial premises to new homes. Although this might appear attractive, we remain sceptical planning in the Localism Bill, the Government are now proposing that businesses should be about how attractive this might be to existing owners or prospective developers and believe that afforded powers to promote similar plans in business areas and thereby reduce the need for the initiative is unlikely to deliver the sort of ‘windfall’ gains in housing that ministers might planning permission for certain activities and/or development. Like neighbourhood planning, hope for. the success of this initiative will ultimately rest on the commitment and drive of the businesses behind these plans. On the face of it, the Chancellor’s Budget Statement offers some encouragement to those promoting development and now forms a material consideration in the determination of planning applications. However, it should be stressed that its provisions are not currently included in any statute, Regulation or formal planning policy guidance so can only be afforded limited weight by planning authorities, inspectors and even the Secretary of State in the determination of individual applications for new development.

In our view, the emphasis the Budget Statement places on Central Government-backed economic growth and development seems rather at odds with what appears to be the Localism agenda and its emphasis on more locally-based community decision making. Having said this, buried deep in the supporting material accompanying the Localism Bill one finds the following statement:

“One of the principal objectives of neighbourhood planning is to increase the rate of growth of housing and economic development in England”

Shepherds Bush – Ongoing advice for refurbishment and enhancement of centre – including change of use of existing offices to budget hotel 44 45

This, we suspect, is not what many of the supporters of Localism expect and it will be interesting to see whether this provision remains one of the ‘principle objectives’ once the Act is in place Key Contacts and neighbourhood planning is underway. Chase & Partners certainly recognise the importance of consultation and community engagement in the planning process. However, we remain Senior Partner In-Town Agency / Professional Development concerned about the adequacy of existing mechanisms (particularly taking into account funding Graham Chase Ian Campbell has, or is being, withdrawn) to ensure that properly constituted communities groups can be [email protected] Mark Paynter [email protected] [email protected] constructively involved and properly advised when participating in neighbourhood planning and Investment Planning design exercises involving new development. Elliott Hart John Shuttleworth Huw Williams [email protected] Managing Partner [email protected] Furthermore, we are also concerned that the Coalition Government might not have the [email protected] Gemma Leach Tom Graham wherewithal to deliver the detail on some of these proposals and be willing to drive through the [email protected] changes it is proposing against the forces of inertia both within and surrounding the planning Keith Nelson [email protected] [email protected] Toby Clowes process. Trying to reform or streamline the planning process is nothing new and experience [email protected] David Hodgetts shows that attempts by successive governments have generally failed. We fear that, despite the [email protected] current rhetoric, meaningful reform of the system will prove to be an altogether more time- Out-of-Town Agency / consuming and difficult process than Ministers envisage and one that, ultimately, may not Development necessarily deliver the results they expect or hope for. Gregory Moore [email protected] Charlie Buckingham Smart Open Season on “Planner Bashing” ? [email protected]

At the Conservative Party spring conference the complexities planning authorities now in early March, the Prime Minister singled face when preparing development plans Further information out “the enemies of enterprise” and what he and administering planning applications Previous Retail Property Briefing papers described as “town hall officials who take (particularly for major development). forever with those planning decisions that Authorities, in our experience, are now 1 October 1996 PPG6 Retail Warehousing: Towards Consesus? Matter of Control! can be make or break for a business - and confronted with a bewildering array of 2 November 1996 The Sequential Test: Opportunity or Problem? the investment and jobs that go with it”. Central Government planning policy 3 December 1996 End of Year Round up - Developments in the Retail Property Market Since then we have seen senior Ministers, guidance and detailed advice that they have 4 December 1997 End of Year Round up - The Retail & Leisure Property Market 5 May 1998 Rating of Commercial Property - Update 1998 and particularly the Secretary of State, Eric to have regard to when preparing plans and 6 December 1998 End of Year Round up - The Retail Property Market Pickles, indulging in some serious ”planner determining applications. We now have what 7 July 1999 The ‘Need’ for Development bashing” – describing the current planning can only be described as a byzantine system 8 December 1999 End of Year Round up - The Retail Property Market system as a “drag anchor to growth” and for plan formulation that will not be easily 9 February 2000 Flexibility and the Sequential Approach pledging to “cut it down to size.” simplified, reformed or dismantled in the 10 March 2000 The Need for the Sequential Approach way some might like. 11 November 2000 Funding the improvement of Town Centre & Town Centre Management Schemes His comments have prompted a particularly 12 December 2000 End of Year Round up - The Retail Property Market 13 December 2001 End of Year Round up - The Retail Property Market stern response from the normally quite This criticism of local authority planners, 14 December 2002 End of Year Round up - The Retail Property Market tacit Royal Town Planning Institute. It has when taken with the impending cuts to 15 November 2003 The Governments Response to the Proposed Changes to the Use Classes Order described the Secretary of State’s remarks public expenditure and its likely impact 16 December 2003 Draft Planning Policy Statement 6. Planning Town Centres as “ill-informed” and accused him of on planning positions across the Country 17 December 2003 End of Year Round up - The Retail Property Market creating many of the problems when he is already starting to have an impact 18 April 2004 Making Better Use of Supermarket Sites - The London Plan decided to revoke Regional Spatial on staff morale. We believe that this, 19 April 2004 Mezzanines 20 December 2004 End of Year Round up - The Retail Property Market Strategies – a decision that was itself the combined with the further changes that 21 December 2005 End of Year Round up - The Retail Property Market subject of litigation. are now being proposed, will do little – 22 December 2006 End of Year Round up - The Retail Property Market certainly in the coming year - to deliver 23 May 2007 Planning for a Sustainable Future Chase & Partners believe that some of major change to the system governing the 24 August 2007 Planning Gain Support the criticism of planners is justified – all majority of applications. As a result, we 25 December 2007 End of Year Round up - The Retail Property Market too often they fail to recognize (or even believe applicants will continue to face 26 March 2008 Competition Commision acknowledge) the commercial impact uncertainty when making applications 27 July 2008 Proposed changes to PPS6: Planning for Town Centres - More Q’s than A’s 28 August 2008 LDF Allocations: Decision Time their actions (or inaction) can have on and may also encounter further delays in 29 August 2008 Community Infrastructure Levy development viability and its deliverability. obtaining consent as resources in planning - December 2008 Retail Property Review departments are reduced. The prognosis in 30 August 2009 Retail Planning Policy: The End of the Need Test? However, the Secretary of State’s criticism the short term is not good. 31 January 2010 Planning Policy Statement 4: Planning for Sustainable Economic Growth also belies a lack of real understanding of 32 April 2010 Spring Retail Report 33 April 2011 Spring Retail Report www.ferguson-creative.com Printed using FSC approved paper Printed using FSC approved Design: www.ferguson-creative.com 20 Regent Street St. James’s London SW1Y 4PH Tel: 020 7389 9494 Fax: 020 7389 9456

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