Spring Retail Report 2018 Diversity First, Retail Second Introduction by Graham Chase Right Space, Right Place In-Town Agency The Return of The Pod Out-of-Town Agency Small Gains, Mergers & Acquisitions Superstores and Supermarkets Retail & Logistics = Rising Rents, Falling Yields Retail & Shopping = Falling Rents, Rising Yields Retail Investment User Mix & Dwell Time Key to Continued Success Leisure 01 Contents “The right new retail 03 Diversity First, Retail Second accommodation in Introduction the right place which 09 Right Space, Right Place draws shoppers In-Town Agency is an important 21 The Return of The Pod ingredient if there Out-of-Town Agency is to be a balance to 25 Small Gains, Mergers & internet trading and Acquisitions the questionable Superstores and Supermarkets sustainability of home Spring 31 Retail & Logistics = Retail Report deliveries.” Rising Rents, Falling Yields Retail & Shopping = Diversity First, Retail Second Falling Rents, Rising Yields 2018 Introduction by Graham Chase Retail Investment 39 User Mix & Dwell Time Key to Continued Success Leisure Introduction 03 Return to Contents Spring Retail Report The Chase & Partners Spring Retail Report is produced annually on about 1st May each year and has been a feature 2018 of the market since C&P commenced trading in 1995. The reports cover both the retail and leisure sectors, both in town Introduction & history of retailing by Graham Chase and out of town, although depending on activity the focus does vary. It is written as an independent commentary on both occupational and investment property market issues Diversity and does not seek to reflect on, or promote, any current instruction or aspirations of a client. History records three periods of significant expansion of retail property. The first was the First, Retail Georgian era in the late 18th century with the innovation of thinner and cheaper glass coupled with the development of mass production techniques. This encouraged market stall holders to give up their “stall risers” and take accommodation in the front parlours of the houses facing the market square with shop fronts of timber framed glass panes allowing the display of goods to Second entice the passing customer to enter and buy their wares. The shop had arrived. The second period of retail property expansion came in the Victorian period when the UK dominated international trade. This golden era in the UK’s economic fortune, brought with it an array of luxury goods for the masses rather than just the elite, such as sugar, tea, coffee, chocolate, and spices together with an explosion of clothing and household goods manufactured in Britain’s mills and factories into the affordable pockets of the fast expanding middle classes. With the UK and world economy recovering in the 1950’s from the aftermath of WWII, the development of the shopping centre in the USA travelled across the Atlantic to the UK and with growing consumerism and availability of credit saw the third period of retail property expansion. The first shopping centre in the UK was the “Arndale Centre” developed by Sam Chippendale (an estate agent) and Arnold Hagenbach (a baker and property investor) in Jarrow which opened in 1961. This was followed by 23 more “Arndales” including the massive Manchester Arndale development built in phases between 1972 and 1979 at the significant cost in those days of £100 million. 04 Introduction Introduction 05 Return to Contents Some argue that the first true American style mega mall was the Bull Ring in Birmingham The retail development pipeline is now down to less than 5 million sq. ft. Shopping centre which opened in in 1964 but regardless of honours claimed nearly every major town in the UK development is only profitable based on long term IRR projections. Supermarket retailing had the potential for bigger and more opulent shopping malls so development continued. By has switched to the strength of the discounters and smaller convenience stores after years of 2006 the development pipeline for yet more new shopping centres had reached 80 million sq. ft. dominance by the mainline superstore retailers. Retail warehousing is in the doldrums and even shopping parks are limited to only a few locations where they can compete and add value. It was not just the development of retail property in town centres that fuelled growing However, the location where the retail property market has really felt the wind of change has consumerism but the arrival of the "shopping experience". The first regional out of centre been the high street with vacancy rates moving to over 15% in 2008 and back up to 13% having shopping mall, Brent Cross was built and opened for trading in 1976, although it had taken some fallen for a brief period to 11.5%. This provides a visible record of what is happening to physical 20 years to get the project completed. Since then, scores of regional and sub regional centres retail across the board. have been developed such as the Trafford centre, Meadowhall, Metro Centre, Bluewater and West Thurrock overlooking each other across the Thames to the east of London to name but a The key to the change of retailing fortunes has been the use by consumers of the internet. few. These purpose-built malls, all having floorspace between 1million and 1.5 million sq. ft. Internet sales first emerged as long ago as 1994 but the real growth has come since 2008 when creating their own environment and have continued to evolve with the latest examples being the western economies went into recession and consumers sought ways of sourcing purchases the giant Westfield centres at Stratford and White City. at a cheaper price and to accommodate longer working hours and more hectic lifestyles. Close by at Blackbird Hill on the outskirts of Neasden and Wembley Safeway (a subsidiary of the American supermarket chain) opened their first “supermarket” in 1962. Presto, Tesco, Sainsbury’s, ASDA and Morrisons, together with others (with some names lost to history) all followed creating massive estates of superstores serving every town in the UK. In 1969 a DIY company known as B&Q founded by Richard Block and David Quayle, based in Southampton, began taking over old cinemas and redundant warehouses with car parking and easy access ideal for bulky goods displays and sales. Rapid expansion followed in the late 70’s with a whole host of other bulky goods traders joining this popular trading format including Queensway, Brown Bear and Dodge City. In the early 80’s the market was strong enough to build purpose-built retail warehouse parks. The late 1980’s saw the creation of American style “Power centres” including category killer type retailers such as Currys and in turn these evolved in to shopping parks creating large stores for high centre retailers, such as Next, aided by loose planning policies and a lack of space in town centres. The western world’s banking failure signalled by the collapse of Lehman brothers on 16th September 2008 marked the end of the availability of funding for major retail developments and by 2011 significant changes in the requirements of consumers and technology had checked the pattern of physical shopping growth which had been expanding for over 200 years. Today the UK has the third largest e-commerce market in the world with annual sales of at least £50 billion per annum representing an estimated 17.5% of all retail sales and projected to rise to between 21% and 25% between 2022 and 2025. With this background it is not surprising that physical retailing has seen a significant change. Yet there is often a misunderstanding of what this means and how it should be assessed, particularly in planning policy and the benchmarking of town centre performance. Most vacancies in the high street, in reasonably strong trading towns, are to be found in secondary and tertiary locations. Prime retail frontages are often trading with only limited vacancies. There are several examples with no vacant prime property, as recorded in Oxford Street which has an official vacancy rate of 0% to its 1.8km long frontage. True central London is rather special but the same limited vacancy profile for “super prime” is to be found in Manchester, Birmingham, Cambridge and Milton Keynes and a number of other major centres in the UK. This is not surprising as although 50 years ago a multiple retailer would seek representation in 400 plus locations, today it is for the top 75 to 100 centres. 06 Introduction Introduction 07 Return to Contents The right new retail accommodation in the right place which draws shoppers is an important The definition of what is the best centre for trading is not easily assessed and many smaller ingredient if there is to be a balance to internet trading and the questionable sustainability of market towns are finding they have strong demand from a more diversified tenant mix and home deliveries. Retail property will have an important place in the future but both in town and trading offer. out of town inclusive of shopping malls, shopping parks, retail warehouse parks and individual shops must be considered differently. We now have an established framework and to reinvent What is clear is that after 200 years the fundamentals, of what makes a town centre work, are the wheel would be foolish, many locations still do not have the right retailing in the right place, going back to their roots. Towns were defined by their commerce and residential occupation. but the problem lies with the planning system which is based on dogma, failure to modernise Whether it was a centre for agriculture and livestock sales or business, commerce and industrial and lack of understanding of the market place.