Back To The Future

Will Scoular, of Investec Private Bank’s structured property finance division says that nostalgia just isn’t what it was – particularly when we consider the shopping centres of 60’s town centres.

Nostalgia is not what it used to be and particularly when it comes to getting sentimental about 1960s shopping centres that populate many town centres in Scotland and the North of England. For architects and shoppers alike they are not things of beauty to be cherished with preservation orders and listed building status.

Beauty though is in the eye of the beholder and investors should not let aesthetic prejudice get in the way. There is a serious investment story to tell about the much-derided pre-cast concrete and windswept malls of the classic 1960s shopping centre and it is not about fashion.

Retail investment has been the driving force behind the impressive returns from commercial property due in part to high levels of consumer spending and a hardening of yields. IPD figures which reveal commercial property showed a total return last year of 19% with retail even higher at 21.6%. And town centre retailing is the jewel in the crown of the sector revival as tougher planning regulations clip the wings of out-of-town developments and retailers wake up to the undeveloped land that can be utilised within a centre.

The town centre is enjoying a renaissance after years of gloom about the death of the traditional high street when shoppers flocked to massive out-of-town malls and never went near their local town. There have been plenty of recent success stories particularly in the North of England with Glasgow and Liverpool enjoying significant regeneration.

However, the timing is right for revival with the imminent launch of real estate investment trusts or REITS adding that extra push for investors. It is important in the current climate to focus on the underlying business plan for a centre when taking the decision to invest. That is the key to any investment in the retail property sector no matter how much the 1960s appeals.

Advantages for the 1960s developments are that typically they are in town centres and are already established as a major shopping draw for the region. That helps to increase demand from retailers to rent space and as long as the centre has a major anchor. Retailers such as Wilkinsons and TK Max have often replaced supermarkets as anchor tenants and encourage ‘dwell time’. Most centres come with parking which is crucial to success. Currently in many centres the parking is often controlled by the local council which will be keen to find partners and upgrade the facilities producing the possibility of another revenue stream.

Income from shopping centres is secure to retailers on typically 10-year leases and on renewal 20-year leases are not uncommon. Planning restrictions mean that town centre developments that have survived so far are now unlikely to come up against new out-of-town rivals and can take advantage of their new-found freedom.

There is plenty of potential to develop cheaply in the town centre as they can be expanded upwards without any land costs. Possibilities include retail unit extensions, leisure developments and even private and affordable housing. There is scope for additional income generation from promotions, mall income and advertising hoardings.

Moreover, there is always the possibility for whole scale redevelopment as in the case of the once despised and now rejuvenated Bull Ring centre in Birmingham.

Investec’s investment with Parkwood in The Cherry Tree Centre, Wallasey, the Wirral, is a classic example. Currently up to 130,000 people a week walk through the centre and the number is growing at around five per cent a year. Wallasey is in an affluent area with around 282,000 people living within four miles. Unemployment is below the UK national average.

Currently the Cherry Tree has 150,000 square feet of retailing on one floor including 39 units, four stores, a Mall Café and a Market Hall plus 250 parking spaces. It has strong tenants including Littlewoods, Wilkinson’s Kwik-Save WH Smith, JJB Sports and Carphone Warehouse.

A two-floor development creating more space for retail while retaining the number of parking spaces is planned. The new retail space will enable existing tenants to develop and provide an improved environment and shoppers’ choice.

Dedicated followers of fashion in the investment arena often end up as losers. However the 1960s revival in the property sector is less about the 1960s and fashion and more about a solid investment story built on strong foundations. The pre-cast concrete has its uses.