Scotland's retail rents are showing smalls signs of strengthening, despite a decline of 0.7 per cent in the last 12 months, the sixth year in a row, according to the Colliers International's 18th Midsummer Retail Report, launched today. The improving picture has been fuelled by a rise in the number of retail centres with stable rents, up from 13 to 19, with 70 per cent of centres seeing rents stabilising in 2014, up from 48 per cent last year, as well as a reduction in incentives offered to retail tenants.
However, average rents remain at three quarters of 2008 levels, or down 23 per cent.
Tom Johnston, director and head of retail with Colliers International in Scotland, said: "Any sign of an improvement in the hard-hit retail sector is good news. However, these are very small changes and have, in part, been helped by tenants requiring marginally less incentives, such as rent free periods, to commit to deals. We are yet to see a significant increase in retailer demand and there may be some time before there is any evidence of a tangible improvement.
"In the meantime, Scotland's retail sector as a whole remains in a fragile state. A strong retail sector is important to the economic well-being of Scotland and we must look at innovative new ways to encourage retailers and shoppers back into city and town centres. National house builders could play a key role in this process and there is growing evidence that Business Improvement Districts may also have a positive impact.
"The relationship between pedestrianisation and footfall must be fully reviewed, to prevent future initiatives from inflicting further damage on retail businesses. In parallel, the time has come for local authorities to remove parking charges in certain city and town centre areas, which will help increase footfall and trade.
"The Scottish Government must also take steps to review the Material Change of Circumstance appeal right, which places Scottish business ratepayers at a serious competitive disadvantage to the rest of the UK.”
Across the UK, with the exception of Wales, prime rents increased by 1.8 per cent over the last 12 months, boosted by a rise of 11.6 per cent in Central London. Outside London, rents dropped by 1.2 per cent. Elsewhere, Outer London (4.7 per cent); the East Midlands (2.7 per cent) and Yorkshire & Humberside (static) were ahead of Scotland. Prime rents in Wales dropped by 9.1 per cent.
This is the first time regional rental growth has been witnessed outside of London since 2008.
Mark Charlton, Colliers International's head of research and forecasting, explained: "Rents in Scottish towns and cities are stabilising, with the historic rental trend following a very similar trajectory to that of the rest of Great Britain, excluding London. While economic recovery has lagged a little, unemployment is falling (6.4 per cent in March) and GDP growth is gaining momentum, with the forward looking Purchasing Managers' Indexes also modestly positive for Scotland. We can look forward to seeing the return of rental growth to the stronger, dominant retail centres."
Scotland’s retail landscape
John Duffy, director in town retail Scotland for Colliers International, said: "The market has had a tough time and is 'coming up for air'. Most of Scotland’s High Streets are over-supplied, with the notable exceptions of George Street, Edinburgh; Buchanan Street, Glasgow and St Andrews. In many of the ‘losing’ towns initiatives are being explored to convert shops into other uses, such as residential, catering and offices.
"While there are signs of a feel-good factor, evidence of deals and rental growth are hard to come by. Most prime market activity has been based on relocations and ‘right-sizing’ for established, successful multiple operators, for example, Ted Baker and Lush in Buchanan Street, Glasgow; and Next and JD at intu Braehead. There has been demand expressed from new market entrants, including Victoria’s Secret; David’s Bridal; Simply Be/Jacamo; and Nespresso.
"The development market appears to be making a comeback, with developers looking afresh at mixed-used retail and leisure schemes in prime locations. For example, there is a growing number of cinema based extensions – St Enoch Centre; Silverburn and Buchanan Galleries in Glasgow and Dundee's Wellgate Centre. On the back of these cinema-anchor lettings, a long list of restaurant operators, including Nando's, Frankie & Benny's, Pizza Express, Handmade Burger, Prezzo and Wagamama, are supplemented by strong local multiples, such as Di Maggio's, Tony Macaroni, Café Andaluz.
"Longer term, the significant new large city centre redevelopments of St James Centre, Edinburgh and Buchanan Galleries are projected to deliver a combined total of in excess of one million square feet of new shopping centre/leisure space between 2018-2020. Both these developments are substantially supported by innovative Scottish Government backed funding."
Chris Humphrey, director out of town retail Scotland for Colliers International, added: "The Commonwealth Games has encouraged the development of many sites that would ordinarily not have been developed for another ten or 20 years, with many of these available for retail uses. Clyde Gateway, the urban regeneration company, has played a major role in delivering many of these sites in Glasgow’s East End the location of many of the XX Commonwealth Games, Glasgow 2014.
"At a more local level, good demand is being experienced for development of new build, value-driven neighbourhood schemes, typically occupied by acquisitive operators, including Lidl, Aldi, Iceland, Home Bargains, B&M and Poundland."