Scotland’s biggest shopping destinations saw rents for retail space increase amid a widening recovery in the retail sector, according to Colliers International’s 20th Midsummer Retail Report, launched today.
This year’s Midsummer Retail Report shows that average rents in the sector north of the Border have hardly moved over the last 12 months – down 0.2% since June 2015. Yet in Glasgow City Centre, the price of retail space jumped 8% in a year, as major international chains vied to secure prime locations in Scotland’s top shopping destination.
Surveying 27 centres across Scotland, three recorded increasing rents, nine saw a decline and the remaining 15 were stable. Edinburgh saw an increase of 3% and Perth was the star performer with a 10% rise – showing that smaller towns and cities can be successful with the right offer.
Top brands want the best locations
• Glasgow is top Scottish destination
• Edinburgh market affected by St James Centre development
• Perth and Dundee show vagaries of supply and demand
• Smaller centres stabilise
John Duffy, director in-town retail with Colliers International in Scotland, said: “Glasgow is by far the strongest shopping destination in Scotland and supply is struggling to keep up with demand, even as new space is created. While many retail brands are very selective they will still pay top dollar for a prime destination.
“Smaller High Streets have stagnated in recent years, and some have moved backwards as retailers leave for larger, out-of-town destinations. That decline largely came to an end over the last year, as cafes, convenience stores and new brands fill the gap. We may now start to see a return to modest rental growth.”
Although the gap between the big destinations and prices in most market towns grew once again, no town experienced a rental drop of more than £5 per square foot for prime ‘Zone A’ retail space. The worst performers were those that are caught in the gravitational pull of Glasgow and its big shopping centres: of the nine centres with deteriorating rents, five are located in Strathclyde, with Ayr, Cumbernauld, Greenock, Hamilton and Irvine all experiencing a decline.
In terms of Scotland’s smaller cities, the example set by Perth shows that small city centre shops can be desirable if the right clientele can be attracted. But in Dundee, the vacancy rate has been consistently increasing since April 2014 and 18.7% of units are now unoccupied.
Ross Wilkie, director, retail with Colliers International in Scotland, said the two cities showed different sides to the issues of supply and demand.
“Perth is doing well at the moment and proving popular with retailers, and yet there are few vacancies in the city centre. As a historic city there is no real chance of building any more retail space.
“Dundee is simply oversupplied, as it has two shopping centres, which are the prime draw for retailers. Even at the best of times, the shopping streets struggled to fill up. The new waterfront development is likely to be a big draw for cafes and other food and leisure businesses and it is hoped these exciting new developments, including the proposed new V & A Museum, will boost the local economy and help improve the attractiveness of Dundee City retailing.”
Meanwhile, the market for Edinburgh retail space is being distorted in the short term by plans to rebuild the St James Centre, which has left many occupiers seeking a temporary home. Colliers International believes that prices on nearby George Street and Princes Street are set to rise as a result.
Rates review is key for secondary centres
• Many hoping for savings at postponed Revaluation
• Still no clarity following consultation on changes
• Survival of marginal shopping areas may hinge on changes to rates
One issue that has plagued retailers and property owners in Scotland in recent years is the postponed business rates revaluation, now due in 2017. This has left many businesses paying rates based on inflated 2008 prices for almost a decade.
Peter Muir, head of rating with Colliers international in Scotland, said: “Businesses have endured two extra years of pain on rates calculated before the recession and they are looking forward to a reduction in their payments. However, a number of questions remain to be answered and the Scottish Government has still not published the outcome of its consultation on changes to the rates system, which concluded more than six months ago. This is now long overdue.
“Some are calling for revaluations every three years, there is talk of a single business rate, and it may be that we see a U-turn on transitional relief.
“A move to re-introduce transitional relief will limit the savings in the areas hardest hit by price declines and will only make matters worse. On the other hand, a positive outcome could give some areas that are on the margins of viability a new lease of life. For budgeting purposes, we need facts and figures as soon as possible.”
No plans for more centres
• Few new developments
• New space to come from extensions of biggest centres
• Dundee set for exciting growth
• Perth City shopping centres have potential
• Aberdeen planners show the way with flexibility
Despite the demand for retail space near the bigger cities, Colliers expects the Union Square extension in Aberdeen and the Edinburgh St James’ Quarter redevelopment in to be the only new Scottish shopping centres to complete over the next five years.
The majority of proposed shopping centre development in Scotland is instead expected to be delivered through extensions, although the large extensions of Intu Braehead and Glasgow Silverburn remain in the early stages.
Anthony Aitken, head of planning with Colliers International, said: “We are in a period of consolidation and extension for the big established centres, and they are unlikely to be challenged, as it is hard for smaller destinations to compete. Instead, mixed retail and residential developments will allow growing towns to meet the need for local shopping.
“This also provides a way forward for towns, which find they have too much retail space. Although many planning authorities remain reluctant to give up any retail space, some sites may be more suited to a mix of residential and community uses, given the good accessibility of town centres. Of course, a basic local shopping provision is likely to remain.
“Dundee is perhaps an exception to the rule as it is in the middle of a very ambitious development of the waterfront and that will be very exciting for the city. The V&A will be a huge draw, so there will be good levels of footfall, and although the primary use is likely to be leisure and tourism activities, I think retailers will want to find a place in that.
“Perth has been the star performer, perhaps because it has a relatively affluent and growing population. There is limited scope for new retail developments in the existing city centre, which is perhaps being reflected in the prices, but Perth has retail developments close to the centre and that is a strength, which retailers are increasingly likely to take advantage of.
“Inverness, as the capital of the Highlands, remains in a relatively strong position and is likely to keep a good mix of shops for a city of its size.
“In Aberdeen, which has always punched above its weight but is currently suffering from relatively hard times, planners have shown great flexibility, allowing mixed developments to ensure that retail and other non-residential building remains viable.”
Although retail space in some areas is out of favour, the overall economic recovery and the growth of online shopping means retail warehousing space is being built.
Anthony Aitken added: “There is a proposed 400,000 sq ft of new retail warehousing space expected to be constructed in Scotland over the next three years. The largest schemes are Gallagher Shopping Park in Fort Glasgow and the largest Next in Scotland being developed as part of phase 3 of The Peel Centre in Straiton. Fort William Retail Park is the largest new scheme but has been delayed as a result of underground cables and is now unlikely to open before 2017.”
Economic outlook for Scottish retailers
Walter Boettcher, director of Research and Forecasting with Colliers International, said: “Like the general economy, retail in Scotland has struggled to record consistent growth since the September 2014 referendum. GDP growth has lagged the rest of the UK due in part to Scotland’s greater export exposure, not least of which its oil trade. Disposable income growth has suffered and retail sales have felt the pinch.
“With GDP set to underperform for the remainder of 2016 and beyond, Scottish retail will need to take decisive and imaginative action to raise its game. Exploiting multi-channel synergies and integrating these with newly defined physical destination offers looks to be the way forward. Evidence of such transition is apparent, but still piecemeal.”
The Brexit effect
Walter Boettcher, director of Research and Forecasting with Colliers International, added: “Assessments of the impact of the ‘vote to leave’ on the UK economy range from a mild technical recession to a slowdown, but no recession at all. Business investment will continue to undermine UK economic performance as political and economic policy uncertainty looks set to last at least until the Autumn Statement in the first week of December, if not beyond. Net exports have also disappointed and it is unlikely that a substantial turnaround in response to weaker sterling will be evident by the end of the year.
“UK economic performance remains linked primarily to household spending which constitutes over 60% of the UK economy. Household spending drives the retail and leisure services sectors as well as the distribution and manufacturing sectors that support it. In turn, household spending has been supported by marginal real wage growth, but far more importantly by the ‘wealth effect’ from rising house prices. Both components are very sensitive to interest rates. Many analysts anticipate a possible cut in interest rates to support the economy. This would support retail in Scotland as well as the rest of the UK. A few analysts also see a risk of an interest rate rise, should sterling fall sufficiently to warrant support from the Bank of England for financial stability reasons. An interest rate rise to stabilise sterling is the key risk to the UK economy and the Bank of England Governor has stated that the price of stability might mean compromising economic performance. Interest rate policy is the key short-term threat to Scottish household spending and retail performance.”