Joining the Dots

JOINING THE DOTS

Midsummer Retail Report 2018

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2018 MIDSUMMER KEY POINTS

“THE FINDINGS CONFOUNDED WHAT THE SHOPPERS WANT A LOT OF THE STEREOTYPICAL ● When a market becomes as dislocated as UK retail property ● The growing proportion of people who do their food shopping currently is, you have to look beyond the standard property online is “a major headache for the supermarket operators” ATTITUDES WE HAVE ABOUT metrics to see what is happening. because at present it is not a profit-making area of their business.

SHOPPERS OF DIFFERENT ● This year’s Midsummer Retail Report, Colliers commissioned YouGov ● At present, 26% of over 45s buy groceries online but this jumps to canvass the views of 3,000 shoppers from across an ’18-80’ to 42% among 35-44 year-olds. GENERATIONS” generational spread. ● The dominant supermarket operators may also face new ● The findings confounded a lot of the stereotypical attitudes competition. Of the 18-34 year-olds canvassed, 54% said they we have about shoppers of different generations. found the prospect of sourcing their food shopping through Amazon Prime attractive. ● For example, whilst young people may be characterised as all avidly shopping online, the research showed them to be some ● The survey asked shoppers if they would pay more for goods of the strongest supporters of the town centre shopping experience. that had validated ethical credentials and/or a clear product provenance. This produced the starkest generational split in ● 78% of 18-24 year-olds named the town centre – as their responses. Among the 18-34 year-old group, 64% said they favoured shopping environment – well ahead of the 55% would be prepared to pay more for these credentials but that of over-45s who said likewise. proportion falls to 47% among the over-45s.

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THE MARKET “OUR FORECASTS FOR THIS Retail Capital Markets YEAR’S TOTAL RETURNS ON Rents and Vacancy ● The shopping centre market has had a very mixed year with major ● Average prime rents across a sample of more than 400 UK deals being interspersed with a collapse in value of some assets. RETAIL PROPERTY ARE MUTED” locations has grown by 0.8% – half the rate of growth recorded in our last report. ● However, we believe there can be good opportunities for those investors committed to long-term asset enhancement of shopping centres. ● The underlying rate of fall in rents is most likely to be more ● UK institutions doubled their year-on-year investment into the acute than this indicates. supermarket sector. However, only flawless assets are commanding the prime yields and only the institutions can afford them. ● The pace at which rents are softening will quicken through to the end of the year while the descent steepens. ● Second tier assets are starting to feel the effects of more general retail uncertainty, reflected in a slight drift in yields. ● Average prime unit vacancy is a similar story. Across the 15 cities that we monitor, the average number of prime retail units which ● High Streets may continue to struggle but there are buyers for are standing empty is 13.3% of stock. well-let, well-located shops at re-based rents. The market is still alive and interestingly, the yield profile is robustly sharp. ● This is a marginal year-on-year increase, but has not yet been impacted by the recent spate of CVAs and retailer administrations. ● Demand for the logistics facilities which serve online retail fulfilment from fashion to food continues to power ahead, but there is some caution ● In affluent areas across the South, many DIY and garden centre about how much headroom there is for occupiers to pay progressive uses are being forced out by the demand for residential development. rents – especially as the growth in online retailing is now slowing.

● Our forecasts for this year’s total returns on retail property are muted. ● Too many retailers have failed for years to adapt their offer, while others have been financially structured in a way that has severely ● In 2017, the return for All-Retail property as measured by MSCI impaired their prospects for survival. was 6.9%. By the end of this year, we expect this to drop to 1.6%.

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BIG TROUBLE NEEDS BIG DATA THE IMPACT OF CVAs “THE APPLICATION OF BIG DATA STRATEGIES IS ESSENTIAL IN THE ● An increasing number of retailers, landlords and investors are ● Some retailers who are clearly not at risk of imminent failure are using a profitability analysis approach to determine strategy. now using CVAs opportunistically to free themselves from leases NEW RETAIL ENVIRONMENT” on underperforming stores. ● This approach should be extended by the application of ‘Big Data’ which shows how consumers are operating in the physical retail world. ● This is not what the CVA tool was intended for and it needs to be addressed. ● Colliers Retail Strategy team use anonymised, aggregated and secure transaction data from more than 2bn credit cards, to create ● There are many aspects of the CVA process that need reform a granular view of spending patterns that provides a credible and this should include: base to compare locations. – Only those creditors directly affected by a CVA should have ● Mobile data from the major network operators can also be leveraged a vote. A property-focussed CVA should be voted on only by to understand crowd behaviour and visitor profile in a location. property owners.

● The Colliers Supermarket Vitality Index leverages over 20 metrics – There should be minimum standards of information provided to assess the current health and future prospects for more than with a CVA. 6,000 UK supermarkets. – Greater rights for landlords to take stores back after a CVA. The single six-month window typical to many CVAs is not ● The application of Big Data strategies is essential in the new sufficient and not well balanced compared to the tenants’ retail environment. much longer break option windows and rent reductions.

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“THE SECTOR IS ONLY PART A NEW WAY FORWARD? WAY THROUGH A PAINFUL AND ● The property industry now needs to contemplate a radical reshaping of the lease model for much of our retail property. RADICAL STRUCTURAL CHANGE ● We believe there should be a shift – particularly in some – HOW WE ALL RESPOND NEEDS shopping centre environments – towards a leasing model which features: TO BE EQUALLY RADICAL AND INNOVATIVE” – Five-year leases granted outside of the Landlord & Tenant Act. – Turnover linked rents. – Mutual breaks linked to turnover thresholds. – ‘White box’ unit specification. – Limited incentives.

● The sector is only part way through a painful and radical structural change – how we all respond needs to be equally radical and innovative.

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FINDING DIRECTION

The theme for this year’s report is ‘Joining the Dots’ because when a market becomes as dislocated as ours has in the past few months, you have to look beyond the usual property metrics to see what is happening.

In terms of the usual headline stats – rents, vacancy and returns VACANCY – the trends cannot be extrapolated forward in the normal way. Vacancy is a similar story. Across the 15 cities that we monitor, AVERAGE PRIME RENTS the average number of prime retail units which are standing empty is now 13.3% of stock. When we reported last year, prime rents across a sample of more than 400 UK locations had grown, on average, by 1.6% – the best This is a marginal year-on-year increase, but has not yet been performance since 2008. impacted by the spate of CVAs that we have seen.

This year that growth has halved to 0.8%, but the underlying trend WHO’S TO BLAME FOR THE MESS? behind that is far more acute. The pace at which rents are softening MARK PHILLIPSON will quicken through to the end of the year while the descent steepens. It’s clear that business rate increases, minimum wage, Brexit uncertainty Head of UK Retail Group and the general economic environment have helped create a ‘perfect It is inevitable that by this time next year, annual growth will again storm’ which is wrecking a growing number of retail businesses. go negative. Indeed, if you remove Central London from the picture, UK average prime rents have fallen by -0.7% since our last report. However, the blame cannot be laid entirely at the door of external forces.

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Too many retailers have failed for years to adapt their offer, while others TOTAL RETURN FORECASTS 2018 YEAR-END have been financially structured in a way that has severely impaired their prospects for survival. The increasingly controversial use by retailers and F&B operators of Company Voluntary Agreements (CVAs) DEC – 17 DEC – 18 is also a major contributory factor and one which needs to be addressed. Standard Retails All 8.4% 3.6% Standard Retails ex-Central London 6.4% 1.5% TOTAL RETURNS Standard Retails Central London 11.4% 6.3% Not surprisingly, our forecasts for this year’s total returns on retail Standard Retails Rest of London 7.5% 3.5% property are very muted. Standard Retails Rest of South East 7.0% 2.6% In 2017, the return for All Retail property as measured by MSCI Standard Retails Rest of UK 5.6% 0.2% was 6.9% by the end of this year, we expect this to drop to just 1.6%. Shopping Centres All 2.9% -3.3% Retail Warehouses All 7.5% 1.2% The modest returns envisaged from Standard Shops and Retail Warehouses, will be cancelled out by Shopping Centre performance. Supermarkets All 8.0% 6.4% The stand-out sectors are forecast to be Central London and Supermarkets with total returns of more than 6%. All Retail 6.9% 1.6%

So the headline metrics give us a feel for where the market is headed, All Property 10.2% 5.7% but nothing like the whole picture.

To get a better handle on that, we want this year’s report to focus Source: Colliers/MSCI on various strands of the retail property scene and what can be learnt from ‘joining up these dots’.

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ASKING THE SHOPPERS WHAT THEY WANT For that reason, we are also proposing a radical new approach to “IT WOULD, OF COURSE, BE leasing which we believe can better align the interests of occupiers, FOOLHARDY TO TRY AND PREDICT Shoppers are ultimately what fuels our market, so we decided to ask landlords and investors (see p12). And equally importantly, it can stop 3,000 of them what they want. the growing voids across the retail landscape which impair shopper WITH ANY CERTAINTY EXACTLY choice, community vibrancy and economic health. In the next section of the report, there is a film about the fascinating WHERE WE WILL BE IN 12 results that this research generated. WHERE NEXT? MONTHS’ TIME” The generational differences that the research tracks are going to It would, of course, be foolhardy to try and predict with any certainty become increasingly important as the gap between the youngest exactly where we will be in 12 months’ time – so we won’t. and oldest in our societies grows bigger. But we hope that the themes and ideas that this report touches on A NEW WAY FORWARD? here give some clarity about the nature of the market. As mentioned, CVAs are now having a substantial impact on the We hope that the dots it connects help to shape your strategic thinking market. In the report, we have looked at how the CVA process might and we would, of course, welcome the opportunity to discuss these be reformed to produce a more equitable state of affairs. trends and how they can feed into strategic implementation.

However, making an aspect of the insolvency process more fit-for- purpose is not going to solve the inherent problems that the retail property sector faces. How we got here is a matter of various factors, but how we are going to move forward will need clear thinking and decisive action.

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WATCH THE FILM

What the shoppers say Matt Thompson and Elle Hunt present some highlights of the YouGov research which canvassed the views of 3,000 shoppers across a generational spread from ‘18-80’.

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RUNNING FOR COVER: LIVING IN A CVA WORLD

The retail property sector has endured some seismic events in the last 12 months which have dislocated both the occupational market and the investment case for owning retail property. Is it time for a new approach to leasing?

There is of course only one dominant theme in retail property today: CVAs. They have been used in all types of business sector and, our firm’s Who would have thought that this obscure restructuring instrument, that Insolvency team can tell you exactly why they can have value for all many of us have had some limited involvement with in previous years, parties – so long as they are used appropriately in the right circumstances. would become so central to the workings of the retail property market. A business whose model is materially outdated, which has too little We believe it’s time to look at CVAs and how they can be reformed cash to service its liabilities, or is overly burdened by debt to be to make them more fit-for-purpose. meaningfully profitable, is probably going to fail and a CVA or administration will be unlikely to save it without fundamental changes being made. And we also want to debate the need for of a new model for retail leasing that can bring better alignment to the interests of occupiers, The ways in which CVAs are being used has rapidly evolved over recent landlords and investors. months. The circumstances behind the New Look, Carpetright, House DAN SIMMS of Fraser and the many other recent CVAs are all quite different and Co-head of Retail Agency CVAs: USE OR ABUSE? their effectiveness will vary.

The irony about CVAs is that they were introduced to try and achieve The original thinking was that they provided a lifeline for a business a softer landing – for both businesses in financial distress – and also instead of consigning it straight into the suspended animation of for the creditors of that business. outright corporate failure.

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Unfortunately, as the saying goes, the road to hell can be paved with TIME FOR REFORM? “WE ARE LIKELY TO SEE THE good intentions. Any tool from a hammer to a CVA can be used for SUCCESS RATE OF CVAs START either good or bad effect and there is now a major question mark The retail market is now starting to respond in a more co-ordinated about the use and abuse of CVAs. way and the feedback we receive from many property owners, occupiers TO IMPROVE DUE TO THE FACT and advisors is that the system is not fit-for-purpose and will now There are very few examples where a CVA brought the ability to need change and perhaps some strong new regulation. THAT THEY ARE NOW SOMETIMES properly restructure and enabled a retail business to move forward. The basic facts of our recent research show that 83% of occupiers The stakes are too high all round for this not to happen. USED BY OCCUPIERS WHO ARE that agreed a CVA in the 10-year period before 2018 subsequently NOT IN GENUINE DISTRESS” entered into administration, radically restructured again, or There are many aspects of the CVA process that need reform completely failed. and this should include:

More pertinently, it’s our view that some retailers who are clearly ● Only those creditors directly affected by a CVA should have a vote. not at risk of imminent failure are now using CVAs opportunistically A property-focussed CVA should be voted on only by property owners. to free themselves from leases on underperforming stores, particularly as the wider creditor base appears to be happy to vote for a CVA ● There should be minimum standards of information provided with restructuring that disadvantages only property owners. This is not a CVA. For example, profit & loss accounts should be provided on what the CVA tool was intended for and it needs to be addressed. a store-by-store basis which reflect both their trading position prior to a CVA and what the projected position would be following the CVA. Ironically, we are likely to perhaps see the success rate of CVAs start This would help clarify why stores are included in CVA proposals. to improve due to the fact that they are now sometimes being used by occupiers who are not in genuine distress. ● And greater rights for landlords to take stores back after a CVA. The single six-month window, typical to many CVAs, is not sufficient and not well balanced compared to the tenants’ much longer break option windows and rent reductions.

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We understand the inordinate pressures that retailers are currently You might think this sounds very familiar – well indeed it is, as the “WE THINK THE PROPERTY facing as the long term structural changes to the retail market play out. Factory Outlet sector has used this model for decades and it is a key INDUSTRY NOW NEEDS TO But property owners face equal challenges, and the way forward has foundation for the ongoing success of that specific part of the to be an equitable approach which respects the situations of both retail world. CONTEMPLATE A RADICAL – otherwise the long term viability of the retail property model will be undermined. So why is this relevant for the rest of the sector? Precisely because RESHAPING OF THE LEASE MODEL it deals with many of the challenges we are facing: FOR MUCH OF OUR RETAIL A NEW APPROACH TO RETAIL LEASING ● It creates better alignment of the interests of landlords and occupiers. PROPERTY” So how do we find a way to develop, own and indeed occupy stores in the future, when the system is currently wracked by concerns over ● ‘White boxing’ coupled with more limited incentives mitigates the fixed overheads, long lease commitments and capital intensive shop-fits? need for capital intensive shop-fits and depreciation.

We think the property industry now needs to contemplate a radical ● Mutual breaks mean only occupiers with a relevant, well adapted reshaping of the lease model for much of our retail property. offer will remain, as both sides have a flexible route out of poor performing sites. We believe there will be an inexorable shift – particularly in some shopping centre environments – towards a leasing model which includes:

● Five-year leases granted outside of the Landlord & Tenant Act ● Turnover linked rents ● Mutual breaks linked to turnover thresholds ● ‘White box’ unit specification ● Limited incentives

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We accept this will not work in some circumstances, particularly in “OUR SECTOR IS ONLY PART WAY fragmented ownership High Streets and for flagship stores, but this THROUGH A PAINFUL AND RADICAL could provide a well-balanced solution for many of our current problems connected to retail lettings, particularly for struggling locations. This STRUCTURAL CHANGE” approach will require a different type of thinking by the investment and valuation community, but the factory outlet sector has shown the way for creating a robust investment case whilst also providing a product that is much loved by the customer.

This isn’t just blue sky thinking. There are plenty of individual examples of similar leases being agreed across the UK. We are sure that a number of forward-thinking landlords will start to adopt some or all of these ideas in the near future on a more systematic basis.

Our sector is only part way through a painful and radical structural change – how we all respond needs to be equally radical and innovative.

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Doing deals in a complex market James Watson reviews activity in the Retail Capital Markets during the past 12 months and looks at where the opportunities may be for investors.

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WHAT’S HAPPENING IN THE SHED?

The retreat of Wesfarmers from the UK following its disastrous attempt to import the Bunnings brand is a timely moment to look at this strand of the out of town retailing market – especially as it is likely to be further impacted by the proposed Sainsbury’s-ASDA merger.

There can’t be too many quasi-recreational activities which feel more WHY DID BUNNINGS BODGE IT? British than DIY and gardening. So why did Bunnings fail so spectacularly, and why are DIY operators From the little shed at the bottom of your garden, to the big one on the closing in some of the very locations which should be best for their offer? edge of your town, enhancing the home and garden is integral to the domestic life of millions. And what’s more, we spend an estimated In the case of Wesfarmers or Bunnings, it seems an almost total £16bn plus per annum on fixing things and making them look nicer lack of understanding of the UK market was a contributory factor. around our homes and gardens. On shedding their ownership of Homebase to Hilco, they also blamed the post-referendum climate; although this feels slightly counter-intuitive TOM EDSON In recent times, the rising cost of homes and burden of increased Stamp given the current trend of people home improving, not moving. Director, Head of Out of Town Investment Duty has encouraged a growing number of people to stay put and improve their homes, rather than move on. And, of course, our weather plays a part. During the first May Bank Holiday this year, after a freezing spring, sunshine across the country In that context, you would expect the DIY sector, and the out of town meant that year-on-year takings at garden centres were up 50%. property market it supports, to be thriving. It will be interesting to see how Homebase fares from here. They have already closed more than 60 stores and now have a network of around 250 – about 40 fewer than market leader B&Q.

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Meanwhile across the UK, a very uneven landscape is developing LONDON DIY STORE CLOSURES AND RE-GEARS “MEANWHILE, AT RENT REVIEW for this type of shed operator. OR LEASE RENEWAL SOME DISAPPEARING DIY STORES OPERATORS ARE PAYING A PREMIUM In affluent areas across the South, many DIY and garden centre uses are RENT JUST TO MAINTAIN being forced out by the demand for residential development. Lease expiries are seeing DIY and garden stores sold for residential development. REPRESENTATION IN A PARTICULAR Meanwhile, at rent review or lease renewal, some operators are GEOGRAPHY” paying a premium rent just to maintain representation in a particular geography.

The map opposite shows stores in London which have either closed or have been re-geared at, in some instances, rents at 15% over market rates.

As a consequence, large population segments – especially across central London – will have no big DIY shops within a 20-minute drive time.

Meanwhile, outside of the South, operators will happily dispose of stores even where the rents are off a lower base. This is usually because the stores are too big, there’s too much competition or local spend Closed simply cannot sustain the representation in that area.

ClosedClosed Re-gearedRe-geared

Re-geared

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CAN WE FIX IT? However, there’s every indication that DIY stores need to improve their “IN REGIONAL LOCATIONS WHERE presence online. At present, they only capture around 25% of the online THE SECTOR IS NOT FLOURISHING, So, we have the strange situation where DIY stores and garden demand for DIY products. This ‘leakage’ to other general online stores, centres are facing extinction but for very differing reasons. such as Amazon, is a challenge to making the most of the click-and-collect LANDLORDS WILL HAVE TO LOOK culture. In this respect, Screwfix have led with a joined-up strategy Well, to answer the question perennially put to Bob the Builder that fully integrates online with their physical stores through LONG AND HARD AT THEIR – can we fix it? – the response is the slightly less emphatic: maybe. a responsive and reliable click-and-collect service.

LEASING STRATEGIES” First, it should be said that not all occupiers are in retreat. We are In regional locations where the sector is not flourishing, landlords currently advising Leyland SDM who have a requirement to acquire will have to look long and hard at their leasing strategies. The retail stores across London. However, these are more compact than warehouse sector is not going to be the only shopping environment the traditional DIY footprint. which looks set to become intimately equated with the concept of turnover rents, if it is to flourish. Similarly, Wickes is considering a 10,000 sq ft store in West London, close to lots of chimney pots. That would be much smaller than their A LOAF OF BREAD AND A BAG OF NAILS, PLEASE norm and will clearly have a strong relationship with the brand’s online presence. The Sainsbury’s-ASDA proposed merger potentially has more relevance to the DIY sector than might first appear. This approach, plus a strategy to put more appropriate product lines – for example, kitchen and bathroom – close to major residential The assertion by Sainsbury’s Mike Coupe that there would be no store development can reshape the offer of brands in particular locations. consolidation post-merger would suggest that the partners have something up their sleeve, rather than just having lots of supermarkets. We’ve already seen Sainsbury’s very successful absorption of Argos – one of the online retailers which currently takes bites out of the DIY operators – and there may be more initiatives afoot.

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Our analysis shows that – even though Coupe is emphatic on the SAINSBURY’S-ASDA ‘OVERLAP’ STORES no-consolidation point – 30% of Sainsbury’s large store estate overlaps with at least one ASDA store. STORES WITHIN FIVE REGION ASDA STORES SAINSBURY’S STORES MINUTES’ DRIVE-TIME STORE OVERLAP % The table opposite shows the ‘overlap factor’ where there are both OVER 10K SQ FT OVER 10K SQ FT OF EACH OTHER (BY STORE NUMBERS) Sainsbury’s and ASDA stores of over 10,000 sq ft within five minutes’ Yorks & Humber 40 33 20 27% drive of each other. The overlap factor is expressed as a percentage of these stores within the total regional portfolio of the brands. East Midlands 29 36 14 22% South West 37 64 19 19% Across the regions, the greatest concentration of these overlaps are in West Midlands 40 45 14 16% Yorkshire, the East Midlands and South West, but as you can see across the country as a whole, the overlap factor is a not inconsiderable 14%. North West 74 51 20 16% London 31 95 13 10% Ultimately, the Competition and Markets Authority (CMA) will decide Eastern 36 64 10 10% if the combined might of Sainsbury’s-ASDA constitutes a monopolistic situation and therefore they would be compelled to dispose of stores. Scotland 58 36 9 10% South East 45 110 14 9% Of course, we could then have the slightly surreal situation where North East 29 20 4 8% Sainsbury’s-ASDA are trying to unload stores that none of the competitor Wales 30 13 3 7% group want. This would then disprove the CMA’s view regarding a monopoly in certain locations. Total UK 449 567 140 14%

Source: Colliers International

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SPENDING MONEY OUT OF TOWN A compact approach to both individual unit sizes and overall store “COLLABORATION BETWEEN coverage levels is clearly more appropriate for the more online-driven, LANDLORDS AND OCCUPIERS IS With regard to how the capital markets are viewing the wider retail click-and-collect world we now live in. This is as much about warehouse sector, activity remained relatively constant last year with right-sizing as down-sizing. GOING TO BE ESSENTIAL” £2.9bn of assets changing hands – almost identical to the 2016 level. Collaboration between landlords and occupiers is going to be essential Average yields have moved out from 6.3% to 6.4% but there’s been if we’re going to find a way through a CVA-hit, business rates relatively good demand from institutions and local authorities. However, burdened and increasingly competitive environment. as we approach the halfway point of 2018, it can be noted the raft of retail restructurings have started to dampen investor demand Finally, be competitive; whether it’s the providers of retail warehouses for multi-let retail warehouse parks outside of the South East. or the businesses that occupy them – everyone is going to have to look at how their offer is compelling. THINGS TO DO Looking ahead, we’d suggest there are three strategies that both landlords and operators in DIY and the wider retail warehouse sector would do well to follow:

● Be Compact

● Be Collaborative

● Be Competitive

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Three shops in London and why they’re important Sara Law’s film looks at a trio of successful retailing formats and what valuable lessons can be learned.

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BIG TROUBLE NEEDS BIG DATA

In last year’s Midsummer report, we profiled our Retailer Profitability Model – a unique in-house model which enables estates to stress-test their holdings in entirely new ways.

In the intervening months as the market has become even more difficult Trends in turnover through the tills is one thing. But how can Big Data to read, it’s been good to see many more landlords adopting this be leveraged for landlords to assess the bigger picture? How can profitability analysis approach. a comparison be made against nearby or similar locations?

Without doubt, store affordability remains fundamental today but for IN THE CROWD landlords and occupiers – it is an important element of an even bigger picture. The answer lies in an understanding of crowd behaviours.

However, with the kind of shifting picture we now face it is necessary We use anonymised, aggregated and secure transaction data from to dig even deeper into how consumers are operating in the physical more than 2bn credit cards, to create a granular view of spending retail world. patterns that provides a credible base from which to benchmark MATT THOMPSON a location against nearby or similar offers. Head of Retail Strategy We’ve all heard the term ‘Big Data’ as shorthand for taking an analytical approach to mass information. This could not be more pivotal in today’s And, through leveraging aggregated data from the major mobile operators retail climate. – we’re also able to understand the profile of crowds and group behaviours in a specific location, compared against others. These mobile For it is vital that any decision making, for occupiers or for landlords, data insights are underpinned by the behaviour of millions of users is underpinned by the latest data, trends and expertise. There is no across the country, who generate billions of network events during shortage of data available for landlords to stay on top of the performance the year. The clear advantage this approach gives is the flexibility of their assets today, and with turnover leases becoming more prevalent, to assess and profile crowd behaviour at any time of day, close to are increasingly exposed to regular performance of their tenants. real time, based on a comprehensive sample size.

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Combining knowledge of sales trends in the local area with observed Designed to support investment and portfolio strategy, the forensic “COMBINING DATA, EXPERTISE crowd behaviours delivers the complete picture. Leveraging both data assessment of a given store is summarised in a simple score rating AND EXPERIENCE IN RETAIL sets gives the perspective needed to assess tenant performance in one of 1-100 which encompasses future sales growth potential, risk area against another and understand the crowd behaviours which drive of closure and reflects its overall ranking in the portfolio. ANALYTICS IS FUNDAMENTAL those sales. Furthermore, through a granular approach, a view can also be given on the impact of an event on attracting a new demographic TAKE THE DATA CHALLENGE TO JOINING THE DOTS AND FOR and repeat visits or simply to better understand who visits a location and at what time of day. As the retail sector continues to evolve, the spaces and places which TRULY UNDERSTANDING CONSUMER serve it must do so too. Through harnessing rich and dynamic data BEHAVIOUR TODAY” SUPERMARKET SWEEP sets, it is now possible to understand change in the physical retail world, at the speed of change of consumer behaviour – without the use Away from mobile and credit card spending data, but in keeping with of static and often unreliable datasets. the themes in this report – our Supermarket Vitality Index has been providing unique insights behind the recent headlines in the sector. Combining data, expertise and experience in retail analytics is fundamental to joining the dots and for truly understanding consumer What makes the Vitality Index unique is its ability to benchmark any behaviour today. UK supermarket against all those under the same fascia. The tool leverages over 20 metrics to assess the current health and future Decision-making based on stereotyping should be avoided at all costs prospects for more than 6,000 UK supermarkets. if we are to deliver a retail strategy that successfully meets the needs of the next generation of shoppers. The tool is designed to assess any UK supermarket, ‘how the grocer would’, drawing upon the data and techniques adopted by the site If you have not yet engaged with data on this sort of level, we would research teams at the major operators. urge you to do so as it will soon be the ‘price of admission’ for executing successful strategies in the new retail world we’re moving into.

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EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > SOUTH EAST & OUTER LONDON

A STEP BACKWARDS

When we last reported in June 2017 we highlighted the stability of the region and the anticipation in the market around some landmark new developments due to open that autumn.

The dynamics are very different in June 2018 – with numerous CVAs, There is plenty of large scale development progressing around the occupier failures, erratic shopper footfall and concerns over increasing region, including the Charter Place extension at intu Watford and voids dominating the market. The contrast across a 12-month period The Beacon extension in Eastbourne both due to open in the autumn. is huge. The Bargate Quarter development in Southampton has seen the demolition of the old centre and autumn 2019 targeted for an opening date. DEVELOPMENT OVERVIEW It is clear that the types of deals and amount of incentives required The two biggest developments in the South opened in autumn 2017. to attract occupiers have changed markedly over recent months and Both Westgate in Oxford and The Lexicon in Bracknell have provided new space being leased today needs to be competitively and flexibly high quality upgrades to the shopping experience in their respective priced with significant initial incentives to attract occupiers. DAN SIMMS towns. Oxford had reported a slow start after opening with numerous voids and delayed shopfitting programmes, which wasn’t resolved until RENTAL GROWTH ACROSS THE REGION Co-head of Retail Agency well into this year. Bracknell looked to be a much more co-ordinated and impactful opening, and anecdotal reports of trading were The London suburbs saw a decline in average prime rents of 0.2%, immediately strong. the first decline in this region since 2009. 18% of suburban locations experienced a decline in rents. This is a major change of fortune after Hammerson’s extension to The Orchard Centre in Didcot opened at a six-year preceding period from 2012-17 when four of those years Easter, while the redeveloped Tunsgate Quarter in Guildford opened reported 5% annual growth. in May with some impressive shop-fits from occupiers such as The Ivy, Oka & Loaf.

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The South East also saw a move to negative rental growth, with PRIME RENTS “THERE HAS NOW BEEN SEVEN a decline of 0.8%, ending a five-year period of stability. A quarter YEARS OF RENTAL DECLINE OUT of locations declined and only 10% saw any rental increase. ● For the first time since 2009, Outer London witnessed negative rental growth of -0.2%. This was driven by nine of the 50 locations OF THE LAST 10, WITH ONLY THE The Eastern region fared even worse, with a decline of -1.2% across in the region seeing decline, and 30 remaining stable. the region, driven by reductions in 28% of locations. There has now PERIOD FROM 2015-17 BREAKING been seven years of rental decline out of the last 10, with only the ● Over the last year, the South East has witnessed -0.5% growth period from 2015-17 breaking the pattern of long-term decline. in rents, which is largely in line with the GB (excl. London) THE PATTERN OF LONG-TERM average of -0.7%. DECLINE” OUTLOOK ● There has been a polarisation in performance: 19 locations across With huge pressure on the leasing market from the ongoing stream the region (13%) saw rental increases whilst 36 locations (24%) of CVAs, an increasing supply of units and the hardening stance saw a decline in rents. of most occupiers, we are anticipating a sharp acceleration in the decline of average rents across the region coupled with incentive ● Across the 60 locations measured in the region, six saw increases. requirements continuing to increase. Aside from Bracknell, which was boosted by the opening of The Lexicon Centre, these were Wokingham (8%), Fleet (7%), Maidstone (5%), Milton Keynes (5%) and Witney (4%).

● 15 locations witnessed rental decline. The greatest declines were seen in Gravesend (-14%), Andover (-9%), Slough (-8%), Fareham (-8%) and Ashford (-8%).

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THE BEST AND THE REST

Last year we reported on a period of strong growth throughout the South West and Wales, which looked to be providing a platform for future progress in the region.

This however, has not materialised, and after three years of consecutive An example of this is Cheltenham where rents remain unchanged from rental growth in the South West, last year saw a -1.4% fall in rents. 2017 and will welcome a new 115,000 sq ft John Lewis department This figure was matched in Wales, which saw no growth in the 21 store in October of this year. locations that we tracked over the last 12 months. With prospects for the UK’s top retail locations largely solid, the pressure More significant in terms of the longer term trend is the number is placed firmly on ‘the rest’ to quickly adapt and provide occupiers of locations which saw decline (25% of the total locations tracked). compelling motives for new acquisitions or they risk falling further behind.

The South West saw significant average prime rent growth in 2017 PRIME RENTS (2.5% representing the highest outside of London and the South East) and this change in fortune conveys the dramatic rental market shift ● 1.4% decline in prime rents in both the South West and Wales. HAL CLARKE that has been apparent in the last 12 months. Senior Surveyor, Retail Agency ● Three locations experienced rental growth with a decline Polarisation between the ‘best and the rest’ retail space is becoming witnessed in nine locations. – South increasingly apparent throughout the UK and this is no different for the South West and Wales. The dominant centres in the region such ● Rents still remain above 2016 levels, on average. as Bristol, Bath, Cheltenham, Exeter and Plymouth continue to benefit from good levels of demand and relatively low levels of vacancy.

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“POLARISATION BETWEEN THE DEVELOPMENT KEY TAKEAWAYS ‘BEST AND THE REST’ RETAIL ● Work has commenced on the £40 million, 100,000 sq ft leisure ● Retail park schemes continue to perform well with very low extension to Drake Circus in Plymouth which is set to be anchored levels of vacancy. SPACE IS BECOMING INCREASINGLY by a 12-screen Cineworld IMAX cinema. ● Demand remains strong for top South West centres such APPARENT THROUGHOUT THE UK ● Refurbishment of the Dolphin Centre, Poole is now almost as Bath, Bristol, Exeter, Plymouth, Cheltenham and Cardiff. complete with the Kingland Crescent retail and leisure AND THIS IS NO DIFFERENT FOR development due to commence shortly. ● Outlook appears poor for smaller centres with an oversupply THE SOUTH WEST AND WALES” of retail. ● Neath’s town centre regeneration now has planning permission and will look to add 110,000 sq ft of retail accommodation as ● With increasing pressures on the occupational market due to the well as a new multi storey car park. Timings for the completion impact of retailer failures, modest wage growth and the recent rise of this development are still to be confirmed. in business rates, the recent decline looks set to gather pace as new transactional evidence is documented.

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RENTS COMPARATIVELY RESILIENT IN DIFFICULT MARKET

In a difficult market, Midlands retail locations have fared relatively well during the past 12 months.

By rising 0.4% on average, prime rents across the West Midlands have plus customers and other visitors which will definitely have a positive seen their third consecutive year of growth. This was driven by impact on shops, restaurants and other amenities in the city centre. performance in four locations – Newcastle-under-Lyme, Droitwich, Cannock and Stratford-upon-Avon. We predict that the stabilisation of rents in Birmingham will continue over the next 12 months. New development has created better environments for Newcastle-under-Lyme saw the largest rental increase at 25%. those working, visiting and living in the city and are driving footfall and spend. However, this was from a relatively low base of £40 per sq ft. Only three West Midlands locations of the 33 monitored registered a fall in rents: Highlights for Birmingham this year will include the opening of the world’s Stourbridge (-13%) saw the biggest decline; Nuneaton (-19%) and biggest Primark, which is due to open in December. H&M has opened Walsall. Locations such as Wolverhampton, Coventry, and Sutton its new flagship store in the former BHS on New Street. Coldfield all remained stable. The food & beverage sector is no longer the driver of demand that EMEL AHMET BIRMINGHAM it was in recent years. Whilst there are some requirements, the ‘race for space’ has ended. Operators are being more cautious, particularly Associate Director, Retail Agency Birmingham still has the highest average Midlands prime rent per sq ft given the rise in rental values. In desired locations such as Colmore – Midlands at £295 per sq ft. Whilst we did not see an increase in the city’s rents Row, occupier demand may outstrip supply but operators are no year-on-year, several landmark office developments will bring a new longer prepared to meet landlord’s rental expectations. influx of shoppers and it will be interesting to see what effect this has. F&B does continue to play an important role in the market. At Grand HSBC is moving into Arena Central this summer while PwC has taken Central, when Paul’s Patisserie, Jones and Vodafone left the centre 150,000 sq ft in the Paradise development and will take occupation early some of the slack was taken up by lettings to Tasty Plaice, Comptoir next year. These lettings will bring roughly 4,000 permanent employees Libanais and Holly Molly.

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“RENTS IN THE EAST MIDLANDS WEST MIDLANDS EAST MIDLANDS HAVE DECLINED BY -0.5% YEAR- Other major developments happening around the West Midlands include Prime rents in the East Midlands have declined by -0.5% year-on-year. the Bicester-style outlet village in Cannock. The opening is anticipated Lincoln saw the biggest rental growth in the region of 14%. This was ON-YEAR” in 2019 and it will feature around 130 designer discount shops, due to limited availability within the prime pitch. Operators that want restaurants, a visitor centre, a heritage trail and a nature reserve. to secure units within the town’s best location will pay good rents to secure the space. There is talk of a cinema, but this is yet to be confirmed. It is developing into a go-to destination for brands like Nike and Adidas, but it remains Boston saw the sharpest decline of -17% which took rents to an to be seen if it will be able to attract the more premium offers such average Zone A of £50 per sq ft – the lowest level that the town as Alexander McQueen, Hugo Boss and Chanel. has seen since 1988.

Construction on the first phase of The Westside project in Wolverhampton Nottingham achieved the highest prime rents per sq ft in the region, is due to start this year and be completed by early 2020 to include a with a further 6% growth last year. The intu Victoria Centre continues multiplex cinema, 40,000 sq ft of new restaurants, shops plus 50,000 to play a key role in the city. However, now that the intu/Hammerson sq ft of additional leisure space and a large hotel. Construction on the deal has not progressed, intu is progressing the redevelopment of the first phase is due to start this year and will be completed by early 2020. Broadmarsh Shopping Centre which is intended to provide an alternative – more discount and leisure-led – experience to the Victoria Centre. In Coventry, there are plans to build a multi-million-pound scheme to create Aside from Nottingham, there are no other new major developments the second largest shopping destination in the Midlands. The proposals planned in the East Midlands. include restaurants, a cinema, bowling alley, hotel and big brand shops to an area the size of ten football pitches. It’s being compared to Touchwood in Solihull and is set to transform Bull Yard, Shelton Square, City Arcade and Herford Street in Coventry city centre. Work on the £300m project, called City Centre South, is due to start in 2020.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > MIDLANDS

Leicester has continued to struggle and is typical of most cities and PRIME RENTS “IN THE F&B SECTOR, THERE towns within the region with an oversupply of retail space. Gallowtree IS AN UNDERLYING DEMAND Gate saw the biggest drop in prime rents during the year, but with ● With an uplift of 0.4%, average prime rents in the West Midlands new investment and a greater retail offer this location will improve. have recorded their third consecutive year of growth. FOR SMALLER OUT OF TOWN Sports Direct is currently fitting-out the former BHS store on Gallowtree Gate which will house the Sports Direct, Flannels and Everlast ● Birmingham prime were flat during the year but are still the DEVELOPMENTS TO FACILITATE Gym brands. highest for the Midlands at £295 per sq ft Zone A. THE GROWING REQUIREMENTS In the F&B sector, there is underlying demand for smaller out of town ● The East Midlands has seen a slight decline of -0.5% in average OF THE ROADSIDE AND DRIVE- developments to facilitate the growing requirements of the roadside prime rents year-on-year. and drive-thru operators such as Starbucks, Costa, Burger King and THRU OPERATORS” convenience stores. This will contribute to the local economy and offer ● Having increased by 14% year-on-year, Lincoln saw the strongest small scale opportunities to landlords and developers to maximise rental growth in the East Midlands on the back of constrained income from secondary and what may be perceived as obsolete assets. supply.

● Nottingham continues to record the highest prime rents in the region, and these grew on average by a further 6% year-on-year.

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WINNERS AND LOSERS

Last year saw a slow but steady pace of deals across the region however, on average, there has been further rental decline.

The North West saw a -1.5% drop in rents during the last 12 months There has been a dramatic increase in supply across the region. – double the previous year’s fall. A large number of BHS stores are still vacant and the situation has been exacerbated by CVAs including New Look and most recently These statistics mask fluctuation in specific locations and there’s M&S closures announced. This leaves a huge oversupply in some winners and losers across the region. Polarisation continues with towns with limited demand. The issues are worst in the secondary pockets of rental growth in prime locations like Central Manchester locations where vacancy rates have increased by 4.5% across and the Trafford Centre which saw 4% and 1% average prime rents the region. increases respectively. Prime space is still being taken up, but the terms of deals are being New flagship stores continue to focus on Manchester city centre with put under pressure as the successful retailers are taking advantage confirmation of Uniqlo signing a deal to take the former BHS store of market conditions. on Market St and rumours that Metro Bank have agreed terms on LLOYD ENTWISTLE another prime site on the street. This is mirrored by further decline OUTLOOK in secondary markets such as Oldham, Ellesmere Port, Northwich Director, Retail Agency – North and Chorley which all saw double digit rental decreases. We are set for a bumpy ride over the next 12 months. While there are a variety of pressures on retailers which are squeezing profit margins, Last Christmas produced very mixed retailer results. There were some the continued structural change in the retail market place is the driving very strong performers and success stories but overwhelming negative force creating a significant imbalance of supply and demand. press coverage has helped to significantly dampen the retail market’s spirits.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > NORTH WEST

There is just too much space in many towns around the country and Following the theme of this year’s report, town centres need to join “FOLLOWING THE THEME OF we are seeing more of it come back to landlords. The major cities and the dots between various uses for them to function as a place to work, THIS YEAR’S REPORT, TOWN schemes, as we have seen over the last few years, will continue to be the live and shop. winners. Pockets in affluent and attractive market towns like Wilmslow CENTRES NEED TO JOIN THE and Skipton will also have continued demand from the retailers who PRIME RENTS are trading well and making money. DOTS BETWEEN VARIOUS USES ● The North West has witnessed -1.5% decline in average prime rents The secondary markets need to be re-invented and re-developed. As we – this was more than double the rate of the decline seen during the FOR THEM TO FUNCTION AS A reported last year, this does not mean creating more retail space in an previous 12 months. PLACE TO WORK, LIVE AND SHOP” already saturated market. This is true in even top markets and calls into question if retail schemes like Chester Northgate should happen. ● Of the 39 locations that were monitored across the North West, only This £300m development has been called into question by an open two saw increases. Manchester saw the highest growth (+4%) and letter to the council from local businesses and property professionals. the Trafford Centre also witnessed 1% growth. The question is can schemes be let without stealing tenants from elsewhere in the town? In many cases the answer is an emphatic ‘no’. ● 11 locations saw a fall in rents, with Oldham witnessing the biggest fall of -17%, along with Ellesmere Port (-14%), Northwich (-13%), There is limited new development in the pipeline in the region. Barrow-in-Furness (-13%) and Chorley (-11%), all in the bottom The Trafford Centre, Barton Square extension and refurbishment is still five locations in the region. planned to complete in 2019, with a new Primark store as flagship. ● Manchester’s Zone A prime rent is now at £280 per sq ft. Many town centres need wholescale redevelopment and re-generation This is the highest it has been since its pre-financial crash level with the introduction of other uses, residential, work space, public realm of £300 per sq ft. etc to restart the way the towns operate. Stockport is a good example of this where £1bn is being invested and ownerships consolidated to effect regeneration.

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UNDER PRESSURE

Since we last reported, average prime rents across Yorkshire, Humberside and the North East have been under pressure.

Across Yorkshire and Humberside, rents were slightly down again The well-publicised spate of retailer CVAs and the retreat of some F&B year-on-year by -1.7% (2017: -0.6%). Of the 21 locations monitored, operators that we’ve seen this year have released space into the market, Harrogate and Kingston upon Hull saw uplifts, but overall the softening but take-up has been relatively good. Closures have presented an in rents was the most widespread since 2013. opportunity for emerging F&B brands and independents to occupy city centre sites. The picture was similar in the North East, which saw its second consecutive year of decline last year, as average prime rents slipped a further -0.8%. Indian Tiffin Room has acquired the former Wagamama on Park Row, while Mowgali – the Indian street food operator – is acquiring space on All locations are under some pressure, but naturally the stronger New Station Street. They are converting basement and ground floor cities are generally faring better. space of the Trinity car park, this is due to open towards the end of 2018.

LEEDS Cosy Club has acquired first floor space on Albion Street, in what was the OLIVIA HUGHES former Next clearance store while the Burning Night Group – a regional In Leeds, prime shopping pitches in the city centre are remaining strong. pub operator – has taken two storeys in Trinity Leeds to offer three Associate Director, Briggate remains resilient, while Trinity Leeds has minimal vacancies bars plus a rooftop terrace. This is due to open in the autumn. Retail Agency – North and rents are proving sustainable. Both locations have seen several new retailers take space this year including iSmash, NYX and Khaadi who are This Yorkshire pub group already operate its Potting Sheds concept in all new to the city. Meanwhile, men’s fashion brand, Farah, has taken Bingley, Beverley, Guiseley and Northallerton and will open a further its first store outside of the South of England in King Edward Street. four this year.

On Briggate, JD has recently acquired the former H&M store on a 15-year lease, at a rent which equates to £273 per sq ft Zone A – the highest in this location.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > YORKS/HUMBERSIDE/NORTH EAST

Arc Inspirations’ The Box – which will extend to 8,000 sq ft and seat In Barnsley, The Glass Works – a joint venture between Barnsley council “OF THE LOCATIONS MONITORED, 150 customers – is opening in the former Ricci’s on Infirmary Street and Queensberry – will provide 26 shops, a 13-screen Cineworld, ONLY NEWCASTLE UPON TYNE in autumn this year. Arc operates Banyan, The Pit and Manhattan Superbowl UK and seven restaurants. These, combined with a new all of which are reporting strong trade. library with community facilities, refurbished markets, new public realm SHOWED POSITIVE AVERAGE and up to 500 car parking spaces, sit within a 9.4-acre site in the heart of Barnsley town centre. Phase 1 is due to open later this year. PRIME RENTAL GROWTH (+10%)” DEVELOPMENT Lateral and Highgrove have planning consent on a 106-acre site PRIME RENTS in West Yorkshire for a regional out of town shopping destination. Located off Junction 32 of the M62, the scheme will provide Yorkshire and Humberside 600,000 sq ft of retail and leisure. ● Across Yorkshire and Humberside, average prime rents were slightly down again year-on-year by 1.7% (2017: -0.6%). The Axiom scheme would be the largest out of town retail planning consent to be granted in the UK since Bluewater. The 75-unit, fully ● At 15%, Kingston upon Hull saw the biggest uplift in prime rents. covered regional shopping centre, will sit in the heart of an already established retail and leisure destination which incorporates North East Landsec-owned J32 Outlet and Xscape. ● Across the North East there was a small drop in average prime rents (-0.8%) for a second consecutive year. The scheme is due to open in 2021, and there are agreements for leases secured on the main anchor stores, M&S (80,000 sq ft), Primark (60,000 ● Of the locations monitored, only Newcastle upon Tyne showed sq ft), Next (60,000 sq ft) and Boots (20,000 sq ft). Lateral have now positive average prime rental growth (+10%). publicly ‘launched’ the scheme and are embarking on the initial phases of their pre-letting strategy with the main MSU operators. The quoting ● 67% of the 18 locations had stable rents – in line with the GB average. rents are in line with prime regional rents, but it will be interesting to see which retailers sign up for pre-lets and what rents are achieved.

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NEW DEVELOPMENT SHAPES FUTURE

The redevelopment of St James Quarter, Edinburgh continues to dominate the development market news in Scotland.

This scheme will create 1.7m sq ft of retail, leisure, hotel and residential EDINBURGH space and, on completion in 2020, is expected to elevate Edinburgh from its current rating as the UK’s 13th best retail centre to 8th. The impressive new St James Quarter Development by TH Real Estate will transform the retail and leisure landscape in Edinburgh and will Other retail developments in Scotland tend to take the form of smaller include 850,000 sq ft of retail, a five-screen cinema, 30 restaurants, park formats where typically there was a food anchor, in the form a food hall, two hotels plus high-end apartments. With completion of Aldi, Lidl and/or M&S Simply Food, Home Bargains or B&M, scheduled for October 2020, we believe that this development will a drive-thru unit largely one of Starbucks, Costa or Tim Hortons put Scotland back on the map for international retailers looking to and a number of other supplementary units. enter the UK market. Occupiers signed to date include Next, Boots, Roomzzz, W Edinburgh and Everyman Cinemas. These schemes are typically in the size range of 40,000-50,000 sq ft and there are examples of these types of developments completed Elsewhere in the city, activity on Princes Street has been limited ROSS WILKIE and under construction in towns as geographically diverse as with only a number of deals transacted including Cath Kidston, Pret Aviemore, Johnstone and Fort William. a Manger and London Gifts. On completion of the St James Quarter, Director, Retail Agency – Scotland the pitch will strengthen eastwards, with the western end of the street likely to suffer.

Zone A rates nonetheless are holding up well and have increased to circa £280 per sq ft Zone A on smaller units. How sustainable this is as a consequence of the St James Quarter development, remains to be seen.

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The capital has seen new restaurateurs making their Scottish debuts Further South, the first floor of the St Enoch Centre is soon to be subject “UNDOUBTEDLY DUNDEE’S with The Ivy, Gaucho and Vapiano all arriving at the St Andrews Square of a £30m redevelopment to provide a 60,000 sq ft of new space PROFILE WILL BE CONSIDERABLY development to complete an impressive line-up. Elsewhere Rodizio including a nine-screen Vue cinema, together with eight restaurants has opened up on George Street, further enhancing the F&B offer including Smash Burger and Nandos. Ask are also understood to HEIGHTENED AS A RESULT OF in the city centre. be in negotiations. The date for completion of this extension – which replaces part of the former BHS store – is Q3 2019. THE V&A OPENING IN SEPTEMBER GLASGOW In the meantime, rents on Buchanan Street have risen over the course THIS YEAR” Late 2017 brought news of Uniqlo, Tommy Hilfiger and Calvin Klein of the last 12 months from around £300 per sq ft to £325 per sq ft all withdrawing from deals within the prime pitches. Zone A.

However, the robust nature of the prime Glasgow market was evidenced DUNDEE by new lettings taking their place. Victoria’s Secret and Schuh will open later this year in the former H&M property fronting onto Undoubtedly Dundee’s profile will be considerably heightened as Buchanan Street. a result of the V&A opening in September this year. This will help to attract further development and retailer spend to the city, helping Other new retailers include Monki, Smiggle and Nespresso. The Ivy to transform it’s somewhat tarnished image. Restaurant is also due to debut in Glasgow, with a deal exchanged on the Nationwide unit on Buchanan Street. We have recently seen Crucible Alba lodge plans to develop a cinema and hotel led scheme with seven additional restaurants in close proximity Whilst the comprehensive extension and refurbishment of Buchanan as a part of the waterfront development. Galleries remains on hold, there remains a proposal to develop a new build southern extension of 20,000 sq ft in which there is already keen Meanwhile, Home Bargains opened their third Dundee site at Kingsway retailer interest. East, and both Smyths Toys and The Gym Group are opening new outlets at The Stack Retail Park.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > SCOTLAND

ABERDEEN The roadside development market continues to be hotly contested by “SCOTLAND HAS SEEN THE Tim Hortons, Costa, Starbucks, McDonalds and KFC with the potential LARGEST RENTAL GROWTH IN THE Aberdeen’s economy continues its slow recovery, with Muse’s impressive for new drive-thru formats being developed by Caffe Nero, Taco Bell Marischal Development having achieved practical completion with recent and Greggs. UK OUTSIDE LONDON AT 0.9%” openings including All Bar One, Costa, Prezzo and Tony Macaroni. April saw the completion of the spectacular new 96-bedroom Radisson Hammerson’s Union Square remains the dominant shopping centre Red hotel at Finnieston Quay, Glasgow where Forrest Developments and restaurant hub in the ‘Granite City’, although is in danger of delivered only the fifth Radisson Red in the world and the first the UK. overheating from an occupational cost perspective. PRIME RENTS New brands are still coming to Aberdeen, reflected by the recent arrivals of Dr Martens on Union Street and Miller & Carter. Matalan is in the ● Scotland has seen the largest rental growth in the UK outside process of relocating within the city to the former Toys R Us store in London at 0.9% per annum. Berryden Retail Park. So there is still plenty of activity north of the border. ● Scottish rental growth is well above UK average, excluding LEISURE London (+0.9% versus -0.7%).

The leisure market remains relatively flat, although it is clear the ● Glasgow has seen prime rental growth from £300 to £325 established F&B operators such as Nandos and Five Guys continue per sq ft (+8%). to do steady and profitable business. ● Edinburgh has seen prime rental growth from £240 to £280 Whilst there are few new market entrants, selective acquisition remains per sq ft (+16%). from a number of operators including Wagamama, Germain Doner Kebab, Hawksmoor, Franco Manca and Tattu. ● The Glasgow and Edinburgh rental increase figures are the driver for the overall rental growth in Scotland.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > NORTHERN IRELAND

WEATHERING THE STORM

The UK regions in general have, at least from an economic perspective, weathered the Brexit storm reasonably well so far and Northern Ireland is no exception.

If you look at business survey data, you will see that London’s Purchasing In the last 12 months approximately £340m of Northern Ireland real Manager Index has slipped down the regional rankings since the estate was traded and retail, via 28 transactions, accounted for about referendum, and Northern Ireland’s average PMI headline value 70% of the NI investment market. at 54.0 is now just above London’s (53.8). NOTABLE TRANSACTIONS INCLUDED: Like the rest of the UK regions, Northern Ireland’s economic exposure is linked more to the economy that services the population than to ● Castlecourt Shopping Centre, Belfast sold for £123m. the international financial balance sheet economy that services international investors. ● Tesco, Newry sold for £27.25m.

● 40-46 Donegall Place, Belfast, sold for circa £16.4m. JONATHAN MILLAR The positive aspect of the Northern Ireland economy lies in its role as a provider of services to the local population, the national economy and ● Valley Retail Park, Newtownabbey acquired by a private Managing Director, the Government. Around one-third of all Belfast employment is linked investor for £11.25m. to public administration and defence, healthcare & social care, and Investment, Development & Agency public education. This is significantly higher than the UK average of ● Great Northern Retail Park, Omagh acquired by a private 25%, or of London at 21%. investor for £9.175m. – Northern Ireland While public sector employment is not generally recognised as the ● Meadlowlanes Shopping Centre, Magherafelt acquired for circa £8m. highest value-add industry, it is certainly one of the less volatile parts ● of the economy and is a highly relevant factor when looking at a location’s Strabane Retail Park, Lidl acquired for in the region of £3m. ability to withstand turbulence in the retail market.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > NORTHERN IRELAND

Since January 2018 there has been limited transactional activity and THESE OCCUPIERS INCLUDE: “ASDA HAS COMPLETED SITE perhaps further investment will be based on the reformation of the ACQUISITION: THE FIRST IN MANY Northern Ireland Executive and signs of certainty following Brexit. Expanding occupiers include: ● Patisserie Valerie ● O’Neills Sportswear YEARS AND IN MONKSTOWN, NI follows the same peaks and troughs as other UK regions albeit, ● Smiggle ● Skechers and uniquely, the weaker pound has benefited EU/UK border towns ● Oliver Bonas ● Nandos NORTH BELFAST” where footfall and sales have risen sharply in locations such as ● Hotel Chocolat ● Five Guys Newry, Enniskillen and Derry. ● Holland & Barrett ● The Range ● Trespass ● Home Bargains BELFAST

In Belfast City Centre, brands such as Zara, Primark and Stradivarius OUT OF TOWN / RETAIL WAREHOUSING continue to report satisfactory sales. Outside of the traditional retail pitch of Donegall Place there is clear evidence of increasing occupational There has been a steady flow of new openings throughout the Province challenges facing both Victoria Square and CastleCourt. led by Lidl, The Range and Home Bargains. EZ Living have taken their second store in Northern Ireland at Holywood Exchange. Poundstretcher, The vigour of new premium/niche retailers (Oliver Bonas, Smiggle, The Food Warehouse and Wrens Kitchen are developing conversations Newbridge Silverware etc) is being focused on Arthur Street and for floor space. Cornmarket. Asda has completed a site acquisition: the first in many years, The impact of CVAs cannot be ignored in a market of finite occupier in Monkstown, North Belfast. demand however, occupiers confident in their strategies are seeing opportunities for growth across Northern Ireland. The Boulevard – Northern Ireland’s only Outlet Mall – has had significant success with new retailers including; Kurt Geiger, Asics and Adidas to name a few, highlighting that the rent turnover model could be a significant pathway forward for the sector.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > NORTHERN IRELAND

LEISURE / FOOD & BEVERAGE Tristan Capital and The Lotus Group have received outline planning “IN OUR OPINION, NORTHERN permission for a new master plan for The Junction, Antrim. The £30m IRELAND OFFERS A MUCH LESS To a degree, the ‘usual suspect’ coffee operators have all been active regeneration plans for the retail and leisure scheme commenced earlier to certain levels. Tim Hortons has now entered the market opening this year with works underway for a McDonalds drive-thru, Nandos, SATURATED MARKET THAN THE in Belfast city centre with an aggressive acquisition strategy promised Starbucks drive-thru and Patisserie Valerie. through to 2020. REST OF THE UK WITH LOCAL Hammerson have announced plans for a new leisure development at Restaurant requirements have significantly cooled in line with national Abbey Retail Park, Belfast. The development will include a new 25,000 RESTAURANTS REAPING THE demand, but we have seen occupiers like Nandos, Five Guys and sq ft Omniplex Cinema, along with 15,000 sq ft of F&B space. REWARDS” Wagamama still proceed with store openings. Local restaurant concepts continue to grow with menus diversifying as the popularity of standard Following the submission of a new planning application, Belfast’s Odyssey fine-dining concepts become less interesting to customers. Pavilion is to undergo a £10m refurbishment.

In our opinion, Northern Ireland offers a much less saturated market than the rest of the UK, with local restaurants reaping the rewards.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > NORTHERN IRELAND

“RETAIL IS EVOLVING AT A RAPID OUTLOOK PRIME RENTS RATE AND THOSE QUICK ENOUGH ● CVAs will continue to dominate the headlines for the short-term. ● Prime retail rents in Northern Ireland are down -3% year-on-year. This has been driven by decreases in three of the eight main TO ADAPT WILL SEE SATISFACTORY ● Limited floor space supply in better locations will continue locations in the province. to attract competition. FINANCIAL RESULTS” ● Forestside Shopping Centre saw a 4% prime rental tone ● Retail is evolving at a rapid rate and those quick enough to adapt increase and was the only location within the study sample will see satisfactory financial results. to see an increase.

● Investment product expected to come to the market from the ● Donegall Place continues to have the highest level of prime rents third quarter of 2018. of the locations monitored and has remained largely stable over the past two years. ● Rental performance will flat line across better shopping centres and retail parks and will erode in a number of Belfast City Centre ● Bow Street Mall in Lisburn saw a -25% drop in rental levels. and provincial locations. This was the most significant decrease seen across Northern Ireland and was driven by the demise of BHS, the relocation ● Limited supply in certain desirable locations such as Arthur of TK Maxx plus doubts around one or more of the remaining MSUs. Street, Cornmarket etc. will deliver incremental rental growth.

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < > CONTACTS

MARKETS RESEARCH

Mark Phillipson Dan Simms Olivia Hughes Mark Charlton Head of UK Retail Group Co-head of Retail Agency Associate Director, Retail Agency Head of Research & Forecasting +44 20 7344 6866 +44 20 7344 6869 – North +44 20 7487 1720 [email protected] [email protected] +44 20 7344 6874 [email protected] [email protected] James Watson Lloyd Entwistle Matthew Thompson Head of Retail Capital Markets Director, Retail Agency – North Ross Wilkie Head of Retail Strategy +44 20 7344 6877 +44 20 7344 6812 Director, Retail Agency – Scotland +44 20 7344 6817 [email protected] [email protected] +44 141 226 1075 [email protected] [email protected] Tom Edson Hal Clarke Elle Hunt Director, Head of Out of Town Investment Senior Surveyor, Retail Agency Jonathan Millar Retail & Leisure Analyst +44 20 7344 6554 – South Managing Director, +44 20 7344 1694 [email protected] +44 207 344 6920 Investment, Development [email protected] [email protected] & Agency – Northern Ireland Sara Law +44 28 9051 1008 Director, London Retail Agency Emel Ahmet [email protected] +44 20 7344 6849 Associate Director, Retail Agency [email protected] – Midlands +44 121 265 7555 [email protected]

EXECUTIVE YOUGOV CVAs AND RETAIL CAPITAL REGIONAL INTRODUCTION OUT OF TOWN CENTRAL LONDON BIG DATA CONTACTS SUMMARY RESEARCH LEASE REFORM MARKETS UPDATES < >