The knock-on effect of Edinburgh’s St James redevelopment has seen prime rents on Princes Street jump by almost a third, according to Colliers International’s 21st Midsummer Retail Report, launched today.
The Colliers International Midsummer Retail Report gives authoritative perspectives across the UK shopping scene by looking at the trends and innovations that are shaping the country’s retail sector and its property market.
Although the current effect is mainly due to the need to find alternative premises for incumbents, after the 1970s shopping centre was demolished to make way for a state-of-the-art replacement, experts at Colliers predict that the £1bn development will give Edinburgh’s retail standing a significant boost when it opens in 2020, by allowing it to compete with Glasgow for big name international retailers.
Colliers’ figures show that the success of Glasgow and Edinburgh helped Scotland post the biggest rise in retail rental rates in the UK, at 4.5%.
Ross Wilkie, director, retail with Colliers International in Scotland, said: “St James is going to be a world-class shopping centre which, as a destination, is something that Edinburgh has been lacking. The owners already have John Lewis as an anchor tenant but no doubt they may be prepared to offer incentives to get more big name retailers in place ahead of the opening, especially high-end international brands with few UK stores, which can draw footfall from far and wide. So far, many of these retailers have opted for Glasgow’s thriving Buchanan Street area when considering a Scottish store, so the advent of the redeveloped St James should introduce an element of competition.
“In the meantime, rents on Princes Street premises, in particular, have soared as displaced tenants from the old St James battled to secure alternative accommodation. While we may see a reversal when the new St James opens, in the longer term, this will help cement Edinburgh’s credentials as a world city and will be positive for all areas, especially the East of Princes Street, which is closest to the new centre.”
According to the report, Princes Street Zone A rates are back up to £240 per sq ft – an increase of 30% in just two years. Meanwhile Glasgow’s enduring appeal to international retailers continued, most notably in Buchanan Street, which saw a surge in demand and enjoyed corresponding rental growth on the street. In the last 12 months, the Zone A rate has jumped from around £280 per sq ft to a peak of £314 per sq ft.
John Duffy, director, retail at Colliers International in Scotland, added: “It’s been a busy year for Glasgow’s prime shopping area as retailers compete to secure space in what is currently Scotland’s top destination. H&M has acquired the former 65,000 sq ft Forever 21 store with Victoria’s Secret, Tommy Hilfiger and Calvin Klein all understood to be under offer on back-filling the existing H&M store directly opposite. Other new entrants to the street include Kiko, Hotel Chocolat, T2, Nespresso, Clarks and Swatch.
“For smaller centres, it’s notable that some are still continuing to thrive, showing that it’s largely up to them to reinvent themselves as attractive destinations for shoppers and retailers alike. Retailing has changed in the last decade and we are now seeing a lot of very good multi-channel offerings, and those retailers continue to seek space in the right towns, shopping centres and retail parks to locate their bricks and mortar operations to best complement their online presence.”
“The substantial drop in business rates finally being enjoyed by many retailers in the smaller centres should also provide a boost to those high streets worst hit by the recession. With some areas seeing reductions of up to 70%, there will be more money to invest in bringing both existing businesses and empty properties up to modern standards.”
The Midsummer Retail Report shows that the restaurant market – until recently a booming part of the mix in high streets and shopping centres – has cooled and activity is more selective. The new boom is in ‘drive thrus’, especially following the entry of Canadian chain Tim Hortons into the Scottish market. Other operators active in this market include Costa, Starbucks, McDonalds and KFC.
Duffy continued: “Tim Hortons has given the roadside development market a shot in the arm, with rental levels for drive-thrus and drive-tos being pushed to new rental highs by intense competition in this sub-sector.”
The majority of proposed shopping centre development in Scotland is expected to be delivered through extensions. Plans have been approved for the extension of intu Braehead and an extension of Glasgow Silverburn is being planned. The new St Enoch Centre leisure quarter will be a much-needed addition to the southern end of Glasgow city centre.
Meanwhile, the trend towards maximising sales through a multi-channel approach has contributed to around 400,000 sq ft of new retail warehousing space planned to be constructed in Scotland during the next three years. Much of this will come from London & Scottish Investments’ development of former Tesco sites, as well as Ediston’s continuing development of Port Glasgow and other smaller schemes in Fort William and Johnstone.
The significant developments in and around St Andrew Square in Edinburgh are increasing the attractiveness of the east end of the City Centre. The Standard Life Investments and Peveril Securities Development on the south side of St Andrew Square has brought in new occupiers from London in the leisure retail component of the development, namely Dishoom and Drake & Morgan (The Refinery), who opened late last year. Further occupiers anticipated at the end of this summer are Wagamama and Iberica. There is also 100,000 sq ft Grade One office space.
In the south east corner of St Andrew Square, Chris Stewart Group is advancing ‘The Registers’ at the former Royal Bank of Scotland HQ, West Register Street and South St Andrew Street. This will offer 15,000 sq ft of restaurant space, 60,000 sq ft of Grade One offices and 50 serviced apartments.
This area is further supplemented by a new proposal for a £45m concert hall, behind Dundas House at 36 St Andrew Square, for the Scottish Chamber Orchestra. David Chipperfield Architects were appointed in May 2017 to design the 1,000 seat auditorium, which will rival best the best in Europe for acoustics and audience experience.
All of these new developments lie adjacent to the new Edinburgh St James, the TH Real Estate development that is currently being constructed. The 1.7m sq ft development, which will comprise 850,000 sq ft of retail, a luxury hotel, 150 new homes and 30 restaurants, due to be completed in 2020. Next and Everyman Cinemas have agreed pre-lets.
The Midsummer Retail report notes that Aberdeen’s city centre shopping continues to come to terms with the knock-on effect of the oil price drop, which has hit the local economy hard. While occupancy levels having fallen across the city as a whole, prime rates were up 11%, showing that the city is still an attractive venue for many retailers.
John Duffy said: “Rental levels in the very prime pitches – notably Union Square and the Bon Accord Centre – continue to hold up well.”
In Dundee, the opening of the £80m V&A Museum in late 2018 will continue to be a catalyst for new development in the city centre. But while the opening of the new museum is expected to dramatically increase tourism numbers and retail spend in the city, there is little sign yet that retailers are jockeying for position.
John Duffy said: “It’s a little too early yet to know exactly how the V&A will affect retail rents, or what further developments will surround it. Retailers appear to be waiting to see what happens.”
In the last year, Dundee saw prime retail rents remain static at c £80 psf Zone A.
Dr Walter Boettcher, research director, economic and property with Colliers International, said:
“The Scottish economy increasingly looks to be buffeted more by the oil price adjustment than by political uncertainty. Hence, Scotland continues to underperform UK benchmarks for consumer spending and disposable income growth – flat in 2016 and forecast to remain weak in 2017.
“Real wage growth is weak due to imported inflation, the result of sterling’s 15% decline after the Brexit vote. In April, real wages were falling at a 1.9% annual rate. Disposable income is also down and house price growth in Scotland remains unsupportive, all of which inevitably affects consumer confidence.
“While this may not augur well for retail performance and rental growth, the Scottish major markets are doing surprisingly well.
“Like other parts of the UK, rental growth has stabilised with positive growth in Glasgow and Edinburgh. Despite these positive signs, there is still a way to go before rents in Scotland’s secondary cities reach the levels achieved in 2008. Nevertheless, a general rebasing of rents looks to be complete, so with a fair wind, retail pitches in Scotland may begin to close the gap with the recovery that has been seen in other parts of the UK.”