Comment: Property Matters
New Year blip, or is USC a sign of things to come?
Happy New Year? Not for the staff employed at the warehouse of USC, at Dundonald in Ayrshire, who within a week of ‘the bells’ learned they were to lose their jobs when the retailer went into administration.
One third of the company’s 90 outlets are expected to close. There are ten stores in Scotland, where the brand was launched, in Edinburgh, in 1989.
This development is something the retail property market could have done without, given that 2014 ended on a relatively positive note despite competition from online traders and ongoing concerns about consumer spend.
Given the battering the market has taken in recent years, on their own the USC store closures will be but a pinprick. But is it likely to be a precursor of things to come in 2015?
Despite this unwelcome start, David Melhuish, director at the Scottish Property Federation, said he was “broadly optimistic” of improved prospects for retail property in 2015.
He continued: “A number of town centres have had well documented challenges and some landlords will have to adapt to the fact that their properties may not return to a retail purpose. However, with the consumer drift towards local convenience stores, the prospects for town centres are certainly improved from a couple of years ago.
The Buchanan Galleries in Glasgow opening would be “the stand out” retail development” expected the year although elsewhere there will be progress on extensions to existing stores.
However he added: “Encouragingly, British Land announced their Fort Kinnaird extension – expected to open in the spring – was fully pre-let towards the end of 2014,”
This relatively sanguine view was reflected on the agency front by Fraser Smith, managing director of Glasgow-based Smith Cole Wright.
He said: “A feeling of greater confidence has been permeating the market with an increase in tenants on the lookout for units, Potential occupiers are, however, very fussy; requirements relating to the location and size of a property are highly-specific which means in many cases their ideal units are already occupied.”
As for being tempted towards vacant units and making savings on their occupancy space, Smith said: “If a shop is lying empty there is usually a good reason for it, and retailers know this.”
In addition to the negative demographic changes, that age-old issue of rates continues to be a bugbear for the market.
Smith continued: “Take, for example, Sauchiehall Street in Glasgow where, for purely historic reasons, the rates bill for some units can be equal to, and sometimes in excess of, the rental costs. Retailers looking to occupy a unit do so with a maximum figure for overall occupation costs in mind. Therefore if the majority of this sum is taken up by rates, there may be too little left in rental income to incentivise the landlord to do a deal.
“The decline in this once-prime retail location is not just down to competition from online and out of town shopping. The current system of business rates has become archaic and a simple revaluation will not sort out the problem. We really need to go back to the drawing board and come up with a better form of local business taxation.”
As for development, Dan Macdonald, managing director of Macdonald Estates, anticipates what might be called a neutral year.
“There is a distinct lack of new tenants on the horizon which is unlikely to stimulate development and I believe it will be some time before this sector revives.
“Having said that the Edinburgh and Glasgow office markets may be an exception. There are signs of new tenant demand coming through and this combined with a relative lack of up to date space suggests there may be opportunities for development on this front..”
As for retail, the market’s current bout of “Tesco-itis” would clearly have a negative effect on development proposals, at least in the short term.
Meanwhile, on the retail investment front, David Melhuish referred to the IPD finding a 10.2pc total return for Scottish retail driven largely by capital growth.
“I think we will get a strong performance again but am cautious about suggesting a similar double-digit level of returns, especially in light of the potential consequences of suggested write-downs of some of the major supermarket property portfolios.”
He added: “I am not certain there will be the strength of investment demand for this to be matched during 2015, particularly given that the number of such assets is not large.”