Land bets on Leeds for a consumer revival

A new shopping centre in Leeds is the first outside the capital since the financial crisis. Is this a return to the good times?
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So could all the talk about a double dip downturn driven by a sovereign debt crisis in Europe combined with the savage spending cuts planned by the coalition Government be just a little bit overdone?

Yesterday the diminishing band of economic optimists apparently received a long-overdue boost as Land Securities announced that work will begin on what is just about the first large-scale retail development outside the capital since the financial crisis began.

JP Morgan analyst Harm Meijer hailed plans to start construction of the stalled £350m Trinity Leeds as a sign that Land Securities is "putting its money where its mouth is".

And the figures certainly seem to suggest that Britain's love-affair with shopping has remained remarkably robust despite the acres of print space and broadcast time devoted to telling us we're in for dark and horrible times as the new Government grapples with a record public sector deficit.

The response to such grim tidings from the average Briton? A spot of retail therapy. According to the most recent – June – UK-wide figures from the British Retail Consortium (BRC) like-for-like sales grew by 1.2 per cent and overall sales by 3.4 per cent. That was no mean achievement given that the comparatives from the previous year were similarly strong.

Perhaps, then, it's no surprise that Land Securities is steaming ahead. After all, the Real Estate Investment Trust (Britain's biggest) said it had "maintained momentum against its priorities" in the first quarter with "good progress on lettings, success in selling properties into the areas of strongest investor demand, improvements to debt facilities from further treasury initiatives, progress on its London development pipeline".

So can the news of Leeds' shiny new shopping centre be taken as an indication that the doomsayers' dark predictions are all wrong?

Well, up to a point. Land Securities itself said that it is making the commitment to the 750,000 sq ft shopping centre development "only after achieving our pre-letting threshold" which, regarding this particular development, is pretty high.

The scheme – which has been on hold for some time although preparatory demolition work did take place last year – has only been given the green light now that some 43 per cent of the shops it will contain have been pre-let with a further 4 per cent of the space currently in solicitors' hands and some blue chip names on the roster.

They include the likes of Next, TopShop and River Island. There is also a planned extension and a new entrance into Marks & Spencer.

Mr Meijer is right in one respect: the total development cost of the scheme (including land and capitalised interest) is still estimated at £350m, while additional capital expenditure will be approximately £240m. Land Securities is certainly making a statement of intent in ploughing ahead even if it has been careful to ensure that there are tenants in support.

But Chief Executive Francis Salway notes that the company is taking a medium-term view of the economy with the project, which won't actually open its doors until 2013, when the worst impact of the current austerity drive will have worked its way through the system and there may be more room for genuine optimism than there is now.

There is also the location to consider too, a point noted by Mr Salway who mentions some important facts: "Leeds is a top-five city that hasn't had any major retail development for 20 years," he says. "Retailers feel that the existing space within the City isn't ideal, as we found with getting nearly 50 per cent of the space pre-let three years in advance. They are willing to back it, because they want the right spaces in the right places."

Land Securities certainly doesn't expect its move to be followed by a spate of copycat developments in the big provincial cities up and down the country. There aren't many other big centres on the blocks and ready to go outside the Capital. No one in property land is planning to get involved in any new gold rush.

But it is true that the High Street has proved more resilient than might have been expected in the circumstances, even excluding London, which has delivered a performance that is exceptional thanks to a rush of tourists coming to these shores to take advantage of the weak pound (the BRC figures show an astonishing 14 per cent sales growth in the capital in June, which is not sustainable in the long term).

A spokesman for the BRC says: "People know there are painful cuts to come, but sales growth has indeed been very good, particularly when you consider the strong comparatives from last year."

But this is no time to get overexcited. Philip Shaw, the chief economist at Investec, is relatively sanguine. He says that perhaps Land Securities' move could at least be a sign that all the doom and gloom being talked about the economy in recent weeks is a shade overdone: "I think you do get a good feeling if a large company is constructing a new shopping complex, that is good news. It is certainly positive as a statement of intent," he says.

However, Mr Shaw adds one rather important caveat to this view: "This (the building of big shopping centres) isn't always the best lead indicator. What you you have to remember that Westfield in West London started just before the last recession began."

Boom time on the high Street? Other developments

Westfield East In Stratford, East London, next door to the Olympic site. The sister to the huge West London development that has enjoyed mixed reviews, this one is being built and is now attracting tenants. Will be open before the end of next year in time for the festivities and will be hoping to draw the interest of the prosperous parts of London's Eastern fringes thereafter if it is to justify its budget. Launched in the teeth of a brutal recession but Westfield's fortunes looked to have improved recently.

Westfield Bradford Can the formula be repeated in the North of England? Bradford is a long way from Shepherd's Bush and might not look like the most likely Northern candidate on the face of it. No surprise to see that this one was put on hold during the credit crunch.

Eastgate Quarters, Leeds Planning consent renewed by Hammerson (the developer) in recent weeks. But councillors have been warned that it may take rather longer than Land Security's Trinity scheme to move forward. Leeds is certainly one of the more likely places outside the capital for developments but don't hold your breath.

Glasgow: Land Securities Not new, but an extension to an existing development. Guess what: it's on hold.

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