Retail Development - Borough of Waverley

IN THIS ISSUE: A FALSE START? RETAIL DEVELOPMENT PROJECTS GET GOING // THE DEVELOPMENT PIPELINE // PLANNING AND POLITICS – LOCALISM // KICKSTARTING DEVELOPMENT – GOVERNMENT FUNDING UPDATE

Retail Development

In this issueWelcome to the fourth edition of our commentary on the retail development market. In this issue we take a look at news that made recent headlines and we review retail development in the eyes of developers themselves, set against the backdrop of what current economic trends would lead us to believe.

We also examine the latest movers and shakers in the retail development pipeline, and the effects of a new direction by the coalition Government for a decentralisation of planning decisions.

Finally, we review the coalition Government’s progress on implementing the highly anticipated Tax Increment Financing, and the progress made since this time last year.

This issue’s contributors:

Adrian PowellSenior DirectorRetail Development +44 (0)20 3296 4196 [email protected]

John PercyDirectorRetail Development +44 (0)20 3296 4195 [email protected]

Caroline SearleAssociate DirectorRetail Development +44 (0)20 3296 4198 [email protected]

Karen CharlesDirectorPlanning +44 (0)203 296 3117 [email protected]

Ceara ByrneSenior SurveyorRetail Development +44 (0)203 296 4471 [email protected]

3 Shopping Centre Development... A false start?

5 Retail Development Pipeline – Market Update

7 National Planning Policy Framework (NPPF)

9 Tax Increment Financing (TIF)

Talking Retail Retail Development 3

Shopping Centre Development... A false start?Commentary on retail trends and their impact on development

For the casual observer the media presents a very mixed picture for the prospects of the UK retail industry; we have the ‘Queen of Shops’ appointed by the coalition to arrest the perceived decline in the high street amid tales of ghost towns dominated by charity shops, betting offices and discount stores; whilst Developers have been announcing new schemes and projects.

There have been continued administrations of well known retailers; notably T J Hughes, Focus, Habitat and Jane Norman whilst in Oxford Street and Bond Street new entrants continue to pay millions to secure a toe hold in the UK with Forever 21 and Victoria’s Secret some of the latest arrivals to the UK shopping scene.

If developer statistics are to be believed it is full speed ahead on a number of stalled and new projects. Is this a false start in the context of continued economic pressures and the growth of multi channel retailing?

We are seeing much commentary on the latest retail sales data as a barometer for the wider economy, particularly falls in so called ‘big ticket items’ such as furniture; however in contrast there are continued strong results posted by amongst others Next, John Lewis, Greggs, OKA and Mulberry – representing a fairly wide spectrum of product and price.

The retail industry employs over 2.9 million people equating to 11% of the total UK workforce; and whilst this is contracting, the British Retail Consortium/ Bond Pearce Retail Employment Monitor showed that in quarter two of 2011 retail employment was 0.4% lower than in the same quarter a year earlier, equivalent to 3,100 fewer jobs, this, in the context of the continued economic uncertainty and predictions of doom expunged by the press, is a small amount. Indicative of the surprising resilience of the sector.

In addition whilst the death of the physical shop continues to be advocated with the internet (and its newest supporter the Smart Phone) being the chief instigator of this decline, however the internet still accounts for only 8% of total retail sales despite exponential growth.


How should the Retail Development Industry Respond?Despite the perceived death of the high street there continues to be an appetite from retailers to grow their business. However whilst this was historically a full UK brand coverage which required hundreds of stores, many retailers now tell us that this can be done from a core of 50 strategic locations, and a well orchestrated multi channel selling strategy.

The space must also suit a dynamic retail environment; with flexibility to shop fit and merchandise to and merchandise to suit evolving trends.

Therefore for a development to be successful it needs a combination of a strong location and attractive flexible accommodation. Simple tenets perhaps, but notoriously difficult to achieve in complex city centre environments.

Developers also need nerves of steel to be able to take advantage of the dearth of competing centres; whilst continuing to expend work up costs in a hostile economic environment. The rewards will be there for those who can be confident.

Tired shopping centres and deteriorating yields also offer opportunities for the regeneration of existing schemes whilst maintaining an element of interim income. In many locations this being further boosted by the cancellation or delay of a proposed new scheme within that location.

The demise of operators such as T J Hughes may in some locations unlock opportunities as they often traded from large footprints in edge of centre locations; often the first to be impacted by a new development, and whose cost of acquisition may have led to compromise or loss of viability.

Retail though, is a dynamic and innovative industry, which is responding positively to the influences around it. We are witnessing a blurring of the edges between sales channels. Tesco in South Korea created a virtual store within an underground station, which apparently boosted the retailer’s online sales 130%, and one could certainly envisage more of this type of environment being created in the UK and worldwide in high footfall locations and anywhere space is at a premium, for example House of Fraser’s click and collect store opening in Aberdeen.

There are other developments too with pop up shops, and consistent rumours of online retailers looking to add a physical side to their business. It seems likely that the future will see an increase in the mix of channels; with John Lewis head of Multi Channel, Simon Russell, firmly advocating that click and collect on-line sales can really help drive other sales in the business. He was recently quoted in the Multi Channel retail event as stating:

“Online sales will grow at a faster rate than in-store sales but shops will continue to be king. The high street and shopping centre shouldn’t be scared, but they do have to be ready to change. People need to be given a reason beyond the products themselves to come and experience a shop, and that’s at the heart of multi-channel.”

The recent Javelin Group White Paper titled “How many stores do we really need?” has drawn attention to the likely effects on existing levels of non-food retail occupation. They forecast that by 2020 the number of clothing and footwear chain stores in town centres will fall by 31%, simultaneously the number of Health and Beauty stores will fall by 18%.”

House of Fraser have opened their first Click and Collect store in Aberdeen, pioneering the way for future shopping trends. The unit is approximately 1,500 sq ft and the emphasis is heavily on creating a relaxed atmosphere in a fashion boutique/internet cafe hybrid in which shoppers can have a leisurely browse of House of Fraser’s range of products on computers, interactive screens and iPads.

House of Fraser have recently announced that they are due to open a second Click and Collect store at Grosvenor’s Liverpool One scheme before Christmas.

A display of groceries at a virtual store within a South Korean underground station.


• Land Securities’ Trinity scheme in Leeds, the only major shopping centre development outside of London, comprising a total of 1,000,000 sq ft with completion expected in Spring 2013, forecast to catapult the city from 7th to 4th in the UK CACI Town Rankings (CACI).

• Land Securities’ Buchanan Quarter in Glasgow with almost all retail space under offer or exchanged. The scheme will provide some 130,000 sq ft of retail floor space.

• Threadneedle Investment’s plan to redevelop Old Square shopping centre in Walsall has been given the go ahead by the local council. The proposals include demolishing the vacant Tesco Metro store and creating three new retail units. Development is expected to begin on the 150,000 sq ft scheme in early 2012 with opening anticipated autumn 2013.

In 2010, reports revealed that new shopping centre space creation was at its slowest pace for 16 years.

Stratford City’s sprint to the finish line may buck the current trend in 2011, but with no planned openings in 2012, what’s in the line-up beyond?

Retail Development Pipeline – Market UpdatePlenty of hurdles

We forecast in last year’s newsletter future shopping centre completions in 2012 would come to a virtual standstill. We now expect to see the lowest annual provision of new shopping centre space in the UK for more than 50 years. The only centre which was due to open in 2012, the Tesco Centre in West Bromwich, has now been delayed to 2013.

Notwithstanding this shortfall in supply, demand for prime, modern and flexible retail accommodation remains relatively stable despite the background of retailer administrations, with selected retailers expanding. This is confirmed by our leasing colleagues working on Westfield’s Stratford City, which opened 95% let.The limited supply of new space coming onto the market should support prime rental levels going forward, although further polarisation between prime and secondary schemes looks likely.

By and large, the result of restrictions in supply should leave those developers first off the starting line to be able to maximise development returns on the few schemes currently on site. This is the theory, but nervousness prevails, no-one wanting a false start.

Notable schemes that are on site and committed to a completion date in 2013 include:

Land Securities Trinity Scheme, Leeds.

Westfield’s Stratford City.


2014 could witness further growth, with a number of towns across the UK making announcements over the last 12 months indicating that this could be a year where the retail development pipeline begins to ease up.

In Bishops Stortford for example, Henderson Global Investors have just obtained consent for their £105 million Old River Lane scheme, providing around 160,000 sq ft of additional retail space amongst other uses.

Furthermore, S Harrison and Development Securities’ Friarsgate scheme in Lichfield is being marketed to occupiers for an opening in 2014, providing 250,000 sq ft of retail space.

Consent has been obtained for John Lewis in Birmingham to open its largest store outside London at Birmingham’s £600m redevelopment of New Street Station and Pallasades shopping centre. Work on the 250,000 sq ft store and remaining shopping has commenced with completion scheduled for 2014.

A further addition to Glasgow’s retail landscape is also expected to complete in 2014 with the opening of Buchanan Galleries, an extension of the existing

shopping centre, adding approximately 700,000 sq ft of retail space to the city centre.

Looking further ahead, forecasting the practical completion of pre-planning application schemes that are still in their design stages becomes ever-more difficult. Developer predictions would imply that 2015 and beyond will see a return to the multimillion sq ft completion levels we have seen over the last decade. However, set against a backdrop of continued global economic turbulence and market tensions such predictions appear optimistic.

Notwithstanding this, in October it was reported that Westfield obtained planning consent for their scaled back plans of Bradford’s Broadway Shopping Centre. Westfield put the scheme on hold at the start of the recession, despite securing a number of prelets including anchor tenants Debenhams and Marks & Spencer. The approved revised proposals scaled down the size of the project by 25% to 75 shops.

It was reported recently that Westfield was in talks to secure £120m of funding from European fund management business Meyer Bergman to kick start development of the Broadway shopping centre in Bradford. The two companies were in talks to create a 50/50 joint venture to push forward the 550,000 sq ft stalled scheme.

More recently it was revealed that Bradford council has secured £17.6million of regional growth funding from the government, which it will match, to regenerate Bradford city centre, including the Westfield scheme.

9

8

7

6

5

4

2

3

1

02008 2009 2010 2011 2012 2013 2014 2015

sq ft (million)

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UK shopping centre development pipeline 2008 – 2015

Source: DTZ.

HIGH STREET FASHION VICTIMSAs consumers continue to be squeezed by rising prices and the government maintains their programme of spending cuts, retailers are increasingly facing trading pressures.

There have been notable retailer administrations over the last three years, with Jane Norman being one of the most recent high street casualties. Analysts have indicated that retailers will likely face additional pinch points during Q4 2011 as their cash positions are stretched having committed to Christmas stock.

Verdict Research estimate that Britain has lost approximately 44,000 specialist shops over the last decade in the wake of the economic downturn and as a result of supermarkets, larger out of town stores and internet retailers taking an ever increasing share of spending.

This year several retailers have embarked on stringent store closure programmes following reviews of their property portfolios, including Throntons, HMV and Mothercare. Whilst others including the Arcadia Group, Carpetright and Next are pulling out of town centres as leases expire. Is the traditional retail high street under threat?

Blacks and Clinton Cards who have both revealed annual losses, have resisted further store closures and have put their faith in fixing retailing basics to turn around their fortunes. The Chief Executive of Clinton Cards has recently said that a review of their property portfolio was focusing on whether stores were in the right locations and properly laid-out, rather than wholesale closures. He claims that the high street is an important part of the community and fabric of the country and will be around for a very long period of time, however retailers will have to modernise and evolve.

Proposed redevelopment of New Street Station and Pallasades Shopping Centre, Birmingham.


The key messages in the NPPF can be summarised as follows: 1. Development will be allowed where local

plans are not in place or up-to-date, unless the development compromises key principles of sustainability as set out in the NPPF.

2. All ‘inappropriate development’ in the Green Belt remains prohibited. The definition of this remains largely as set out in PPG2, with some key changes.

3. Councils should retain a rolling five year supply of deliverable sites to meet housing need, with at least an additional 20% allowance to create competition and choice.

4. There are no targets for the level of housing to be delivered on brownfield land (i.e. removal of the 60% target).

5. A positive and proactive approach by Local Authorities in encouraging sustainable growth through a clear economic vision and strategy for their area, based on local business need.

6. Support for neighbourhood planning (to be introduced through the Localism Bill) whereby Neighbourhood Plans may be drawn up, approved through referendum and put in force by the Local Authority. The

Planners have been told that the default answer to development is ‘yes’. Ministers now see planning as a proactive driver of growth and development. The draft NPPF states that a positive planning system is essential to support the country’s economic growth. Permission should be granted where the plan is absent, silent or out of date. Is this planning’s biggest shake up for years and will it bring about the death of Localism?

Planning minister Greg Clark announced the Government’s intention to publish a ‘consolidated document of planning policy and guidance’ in December 2010. The National Planning Policy Framework was eventually released for consultation on the 25 July and brought few surprises.

Numerous parties have already voiced their opinion on the document and the government have come under scrutiny as to whether the NPPF reflects the widely publicised ‘Localism’ agenda or whether it has become part of a growth agenda to deliver economic regeneration (with accountability for environmental matters and community input).

Greg Clark has determined that the purpose of planning is to help achieve sustainable development, which forms the basis of the NPPF. The ‘presumption in favour of sustainable development’ forms the ‘golden thread’ through this document in both plan making and decision taking. It seeks that local authorities plan positively for new development and approve individual proposals to achieve the delivery of positive economic, social and environmental growth for this and future generations. The default answer to development proposals should be ‘yes’.

NPPF also confirms that Neighbourhood Plans can only specify more, rather than less, development than set out in the Local Plan (which will take precedence).

7. Local Plans should set out the quality of development required in their area and encourage developers to work with those affected by development to incorporate their views.

8. Support for the ‘Duty to Cooperate’ (to be introduced through the Localism Bill) whereby Local Authorities and other public bodies plan across administrative boundaries for housing, transport and infrastructure to meet local need. This should also be a mechanism for securing economic growth by working alongside Local Enterprise Partnerships (LEPs).

9. The right for communities to protect green areas of particular local importance (to run alongside the consultation on ‘Town or Village Green’ provision).

10. Retention of a ‘town centre first’ approach for retail and leisure development (but not offices).

To achieve this, local planning authorities are tasked with:

• Preparing Local Plans which can flexibly meet objectively assessed development needs.

• Expediently approving development proposals which accord with statutory plans.

• Granting permission where the plan is ‘absent, silent, indeterminate or where relevant policies are out of date’.

All of these measures should apply unless the adverse impacts of allowing development would significantly and demonstrably outweigh the benefits, when assessed against the policies in

the NPPF.

National Planning Policy Framework (NPPF) Going for growth! A planning update


Commentary Although there is a positive move from the control to the management of development, which is likely to be welcomed by the development industry, the NPPF is by no means a green light to planning permissions.

The draft document is accompanied by an impact assessment which highlights the risks, particularly in relation to the ‘presumption in favour of sustainable development’. The presumption requires that local planning authorities grant planning permission to developments in the circumstance where their local plans are ‘absent, silent or indeterminate’. The measure is intended to encourage councils to bring forward plans more quickly and make sure that they take responsibility for meeting the identified development needs of their areas.

Producing plans in an expedient manner has proved challenging enough to Local Authorities since the changes to the planning system in 2004. One might question what likelihood there is of this being achieved in the increasingly budget constrained environment they currently face? The presumption is likely to result in increased numbers of appeals, which could have time and cost implications for achieving planning permission but may result in greater levels of success through planning appeal.

It is notable that the presumption in favour of development applies to that which is ‘sustainable’. This description will doubtless be open to challenge and subject of planning appeal.

It is also questionable whether, without national or strategic guidance, there can be the delivery of balanced housing and economic growth across England. Doubtless there will be some Local Authorities who are proactive in plan making with a view to delivering development, but there will also be those who are not; in the same way there will be communities who use their increased powers pro-actively and those who do not (or simply do not use them at all).

Indeed, this in itself is potentially the driving force in guiding where development is pursued and delivered or best avoided!

The draft NPPF seeks to reduce the complexity of national planning guidance, with the aim of clearing the way for the delivery of high quality places for people to live and work and, in turn, drive a successful economy. It seems to recognise the potential constraints of a strong Localism agenda, but the question remains, however, as to whether it includes enough guidance to achieve development and whether Local Authorities will actually be able to produce the clear local level guidance that is needed.

It is DTZ’s opinion that the draft NPPF is doubtless a huge shake up of the planning system, which is capable of delivering change and may indeed significantly restrict the Localism agenda.

Other Localism MattersThe Decentralisation & Localism Bill is more than halfway through its Committee Stage in the Commons and there has been much comment over the past year on whether it will help or hinder regeneration. Caroline Searle looks into the proposed changes and comments on their ability to promote development, or otherwise.

Third Party Rights of AppealThird party rights of appeal threatened to delay major planning applications by allowing local people to appeal against planning decisions, rather than only the applicants themselves. Following protests from the development industry, the government has accepted that third party rights of appeal would result in increased costs and delays in the planning system and excluded these rights from the bill. The creation of neighbourhood plans (see above) means that there is scope for community involvement in planning decisions at the start of the planning process. However, another version of third party rights of

appeal is now being suggested - the community right of appeal.

Under the proposals for the community right of appeal, a community will be able to appeal a planning decision that is not in keeping with its neighbourhood plan. The BPF argues while it is accepted that local authorities would generally not wish to go against the Neighbourhood Plan, there may be times when it is appropriate to do so, for example if the neighbourhood plan is out of date. The BPF also makes the case that the local authority should be able to take decisions that overrule aspects of neighbourhood plans when it would be in the best interests of the local authority area as a whole to do so.

Changes to Permitted Development RightsThe government is proposing to remove the need for planning permission to change vacant and/or derelict commercial premises into residential premises, and will consult on this shortly. A review of the Use Classes Order is also going to be carried out.

Community Infrastructure LevyThe original intention of the CIL is to assist with the funding costs of the infrastructure required by a new development. However, the government has also indicated that it wants a proportion of CIL to go to those neighbourhoods/communities where new development takes place. It is not clear how this allocation will be made and if taken too far, could undermine the original purpose of the CIL.

With the Localism Bill still being formed, it is too early to say whether it will be welcomed by the development and regeneration communities but it seems as though comments from industry bodies such as the BPF are being taken on board, and in our view, the changes proposed above are definitely a step in the right direction.


Tax Increment Financing (TIF)A Coalition Pipe Dream?Almost 18 months have passed since the Coalition entered power and more than 3 years since the property industry started lobbying for a borrowing system akin to that of the US. Adrian Powell asks what has changed?

Local Government FinanceIn July 2011, the Department for Communities & Local Government sought responses to the Government’s consultation on proposals to enable local retention of business rates and Tax Increment Financing and the property development industry, including BCSC, has submitted them before the closing date of 24 October 2011.

TIF’s are already Government policy, but their introduction has been delayed by their implementation being tied into the longer term implementation of this review.

The consultation was commenced in July 2007 and sought to decentralise Britain’s Local Government finance system and promote localism. The first phase of the Government’s review of Local Government resourcing is focused on the local retention of elements of England’s £19 billion annual business rate collection. With Councils having greater control of the cash to be invested to achieve local priorities. It is hoped that this will create incentives for Councils to work with local businesses and create the right conditions for growth and giving Council Leaders the opportunity to express their ambition and priorities.

In the consultation paper the Government stated their intention to bring forward legislation to introduce business rates retention from April 2013.

Of particular interest to the retail development community is the extent to which the localism and control of local finance will enable Councils to promote regeneration and development within their city centres, to stimulate economic activity, job creation, an exciting retail environment and maintain or improve their position in the retail hierarchy to counter the increasing drift of retail sales to fewer larger and better centres.

Developers of large projects with significant up-front infrastructure works or site assembly have particular interest in the suggestion of provisions for a developer led Tax Increment Financing model. The TIF variant known as Local Tax Re-Investment Programme (LTRIP) is strongly preferred. The industry believes that the LTRIP model transfers risk to the private sector and does not require reliance on the public sector purse as with alternative public sector led tax increment proposals.

The advantage of LTRIP is that it does not require any initial borrowing by the local authority, only the undertaking that additional business rates generated by the development be retained by the developer for a period of time. This puts additional risk on the developer as the leasing risk remains with them for both the rent and rates, but nevertheless allows for a funding source and a form of debt repayment vehicle in respect of identifiable infrastructure or other up-front investments. The other advantage is that tax flows are more predictable and secure than rental flows. The private sector bears the risk for control, value and cost independently of the public

sector with no further risk of demand on the public purse. It is easy to see why the private sector prefer this than traditional development finance alternatives.

In our view it is important that individual companies involved in these or related activities continue to make their representations to the Government at every future opportunity in order to secure TIF’s to assist in the restarting of the UK Retail Development Pipeline.

Retail DevelopmentNovember 2011

DTZ’s Retail Development Team has built a substantial and successful track record of assisting our clients by identifying opportunities and forming them into deliverable development projects.

Our extensive office network combines national and international market exposure together with other sector specialisms covering planning, CPO, residential, offices, industrial, leasing and capital markets.

Our ability to see projects from definition to delivery provides our clients with a unique, comprehensive service:

Site Assembly Negotiations with Stakeholders

Design Development Feasibility & Viability

- Site identification

- Competitions and OJEU process

- Private treaty negotiations

- Property cost estimates

- CPO advice

- Extensions and asset management

- Development and indemnity agreements

- Joint ventures

- Pre-application consultation

- Landowner consultation

- Section 106 and developer contributions

- Anchor store leasing

- Relationship management with local authority or other partners

- Advice on optimum layout

- Research and demand analysis

- Mitigation of cost and risk

- Bespoke viability analysis

- Sensitivity analysis

- Detailed cash-flow modelling

- Tied to developers own analysis or standalone

- Funding and delivery

- Forward sale(s) of part or whole

- Working through development agreement conditionality

Documents

Retail Development - Borough of Waverley