Retail in flux as the strongest grow and some others vanish

Francis Salway, chief executive of Land Securities, said that the strongest retailers are taking more space in prime locations in the biggest cities, while others downsize or fail.

The high street is being hammered by falling consumer confidence and competition from online retailers, but Mr Salway is adamant that his company’s forthcoming £350m Trinity Leeds development will buck the trend.

The one million square foot scheme is 58 per cent let with tenants including Marks & Spencer, Primark and Top Shop and is set to open in spring 2013. It will also feature an Everyman Cinema and two Conran restaurants.

Mr Salway told the Yorkshire Post how consumers are driving changes. He said: “We are absolutely clear that we need to create retail environments that people go to for a day out so the shopping centres that we deliver now will have much more emphasis on leisure and catering than would have been the case 15 years ago.”

He added: “Sometimes you can see a theme around change. Change can create opportunity.”

Land Securities, a FTSE-100 company, owns and manages more than 29 million sq ft of shopping centres and offices.

Mr Salway said that his company’s vacancy rate is 3.7 per cent, compared to the estimated 14 per cent rate of empty shops across nearly 800 town centres.

“What that is showing is that, yes, there are some retailers who are failing or shedding space, there are others who are taking space who are doing so in the best-located assets in the bigger conurbations in the UK.”

This raises the prospect of more store closures in secondary and tertiary locations.

Retailers to fail this year include Focus DIY, Oddbins, Habitat, Moben Kitchens’ owner Homeform, Jane Norman and TJ Hughes. Others, such as Mothercare, Thorntons, Carpetright and Comet, are closing outlets.

Online competition is making life tough for high street retailers, but Mr Salway said the internet can also help boost sales among companies that sell their own goods as they can find synergies between online operations and store portfolios.

Land Securities surprised the market a year ago when it announced that it was recommencing work on Trinity, mothballed after the financial crisis.

It became the first major scheme to go live outside of London.

Mr Salway said that once Trinity is open, total shopping spending in Leeds will increase by between 15-20 per cent. He compared the shopping centre to “the last piece in a jigsaw that just drops into an established city centre framework” and said it would not damage other parts of Leeds or permanently alter shopping patterns in the city.

He added: “With a lot of our projects we rejuvenate towns and city centres and you can see a pick up in local confidence when you have a project that is really successful.”

Land Securities expects to see returns on its investment once Trinity Leeds is complete, assuming that the centre is predominantly let.

Mr Salway said: “Not only do we see Trinity Leeds as being a great development, we see it as being a good ongoing investment in the way that we have with White Rose (shopping centre in south Leeds).

“We made money on the development and we continue to get good investment returns on White Rose.”

As Land Securities invests in Leeds, it is selling off some of its other assets.

This is part of the company’s wider strategy on property development.

Mr Salway said: “The attraction of development, if you manage it successfully, is that you can achieve a yield as high or even higher than on some of the lesser quality assets that you are selling and that’s the reward for the risk you take.

“So we expect to achieve a yield of this very prime project in Leeds of eight per cent, which is higher than the yield the buyer will get when we sell some lower quality assets in smaller towns throughout the country.”

His toughest call since the financial crisis came in 2009, he said.

“It was around the moment when you move from continuing to sell assets to manage gearing levels in the business to beginning to invest again.

“A lot of property is about timing. The best calls tend to be when you’re a little ahead of others on timing.

“I think we surprised people, a little, when we restarted development in London and certainly when when we started the scheme in Leeds, but I think a little surprise is a good indicator.”

Low interest rates driving investors

The combination of low interest rates and low Government bond yields has drawn investors into the UK property market, according to Francis Salway.

The risk factor in the equation is pressure on consumer spending, he added.

“But those two things balance one another.

“It’s the pressure on the economy, on the consumer, which have kept interest rates low.

“We are seeing a balance between what’s providing a boost to capital coming into UK property and what perhaps is our challenge, but I think we have shown ... that the strongest retailers are continuing to invest to grow their portfolios a little.”