Prime rents on Princes Street have soared by almost a third due to the knock-on effect of Edinburgh’s St James redevelopment, according to a property report.
The report, which gives authoritative perspectives across the UK shopping scene by looking at the trends and innovations shaping the country’s retail sector and its property market, states that prime space in the capital has increased to £240 per sq. ft. in just two years.
Along the M8, Glasgow has seen prime rents grow 7% to £314 per sq. ft.
The significant increase in Edinburgh is mainly due to finding alternative sites for incumbents after the 1970s’ shopping centre was demolished to make way for a state-of-the-art replacement, according to Colliers International’s 21st Midsummer Retail Report.
It predicts that the £1 billion development will give Edinburgh’s retail standing a significant boost when St James opens in 2020, allowing it to compete with Glasgow for big name international retailers.
However, they also cautioned that Princes Street, for so long one of the city’s main shopping thoroughfares, could suffer as a result of the impressive new centre.
Speaking to the Daily Business, Ross Wilkie, director, retail with Colliers International in Scotland, said: “All the tenants who were in the centre have had to be decanted and found new homes in the city centre. That has brought down supply and increased demand.
“You could argue that the rise in prices is because of the ‘St James effect’. It might be the opposite in 2020 when the St James opens as there might be an over-supply and other parts of the city centre may suffer.
“What we predict is the western end of Princes Street and Shandwick Place will weaken as what you’ll find is a lot of the retailers are going to gravitate towards the other end of the street towards St James.
“It’s going to shorten the pitch as everyone is going to want to flock to the eastern end.
“It’s already the weaker part of the street but is going to weaken further. Take, for example, Next, River Island, Boots – they are all going to have a store in St James. So at some point that retailer will want to work out if they want dual representation at either end or consolidate with one in St James.
“You can’t second guess that as only the retailers can decide whether they want two flagships or just one big store.”
The new St James will firmly establish Edinburgh as a retail destination for locals and visitors alike, according to Mr Wilkie.
The TH Real Estate 1.7m sq. ft. development will comprise 850,000 sq. ft. of retail, a luxury hotel, 150 homes and 30 restaurants, with Next and Everyman Cinemas having already agreed pre-lets.
“Edinburgh has lacked a dominant shopping centre and even the St James in its old format was a bit tired,” said Mr Wilkie.
“The St James is definitely a bigger positive than not. With all due respect Waverley Mall has improved but it’s not on a par with a Braehead or a Silverburn or a St Enoch, for example.
“But once St James comes on line in 2020, it really will put Edinburgh back on the map.
“If you look at the UK retail rankings, Glasgow sits No. 2 in the whole of the UK so outwith London it’s the highest ranked regional retail centre.
“Edinburgh is down at 13th at the moment but predictions are that the city centre as a whole will move up to 8th on the back of the new St James. It will also increase competition between Edinburgh and Glasgow. The stronger retail city has always been Glasgow but when you have a big new shiny shopping centre like St James, with the landlords willing to throw money at it to get the right tenants, that could make a difference.
“Glasgow will still be the more dominant of the two, however.”
Colliers’ figures show that the success of both cities helped Scotland post the biggest rise in retail rental rates in the UK, at 4.5%.
Elsewhere in Scotland, out of 27 locations, rent has increased in six including Stirling (+13%), Aberdeen (+11%), Irvine (+10%) and Dunfermline (+5%).
Head of Retail at Colliers International Mark Phillipson, meanwhile, believes retail is evolving and sees much to be encouraged about despite the challenging market place.
He told the Daily Business: “We are in a challenging economic climate at the moment for retailers and investors alike. You have to have a slightly cautious eye on the economy but so far so good.
“British retailers are generally dynamic people and hard workers. Despite all the things that have happened, they are making a good fist of it in what is a tough market.
“It’s a surprise things aren’t harder in the circumstances. We’ve had freak election results, Brexit decisions, terrorist attacks. All sort of things could have knocked people’s confidence but I think people are more resilient to shock than they used to be and the retail market looks quite good.
“We need a bit of stability as much as we can in this day and age and hopefully the economy can start growing again.
“Rates of growth may have slowed down but they are rates of growth, and not negative growth. It’s still growth but at a slightly slower rate. It’s encouraging.”
Urging the smaller independent retailers to play to their strengths, he added: “The one thing we have to remember is that so much focus is being put on online retailing which is evolving very quickly, and customer habits are changing, but 85% of shopping is done in physical shops.
“People often talk about shopping either being online or physically retailing when actually they are complementary to each other.
“Across the whole of the UK it’s evolving but certainly not dying. And there are a number of really good retailers putting out very positive trading statements.
“Edinburgh today in comparison to two years ago looks fantastic. The trams are finished and it looks really prosperous.
“To build the new St James is a massive vote of confidence in the city. It is a big, big scheme and it will be amazing.
“The smaller independent shops need to emphasise what makes them different, play to their strengths which bring people back.
“As secondary property gets a bit cheaper hopefully more will be encouraged to do that.
“With smaller retailers they have to emphasise their point of difference. There has been a real resurgence in people wanting one-off brands. You can see that in the coffee shops, for example, but you’re also seeing that in butcher shops, cheese shops and elsewhere.
“People can go to a supermarket and get it cheap but if they are very particularly passionate about something, they’ll pay a slight premium for that.”