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Analysts forecast slowdown in UK shopping centre development

The recent opening earlier this month of Westfield Stratford City accounted for 81% of the pipeline for the second half of the year and the 2012 pipeline currently stands at approximately 18,500 square meters which would be the lowest annual increase in provision since the 1950s.
The report from property consultant Cushman & Wakefield says that with more than 217,000 square meters of shopping centre space due to open in the second half of the year which brings the projected 2011 completion total to nearly 264,000 square meters, this is massively skewed by Westfield Stratford City.

Apart from Stratford City, only two new schemes are scheduled to open in the second half of 2011, 27,400 square meters at Parkway in Newbury and the7,100 square meters at the mixed use Cube scheme in Birmingham. Bluewater and Meadowhall are also being extended, with the Bluewater Events Venue and the revamped Oasis Dining Quarter scheduled for completion before the end of the year.

As of 01 July 2011, total shopping centre floorspace in the UK stood at nearly 16.5 million square meters across 698 schemes, whilst Gross Lettable Area (GLA) per 1,000 inhabitants was 264.5 square meters. Shopping centre density in the UK is above the European Union average of 240.3 square meters.

Completions are expected to slow dramatically next year. The53,000 square meter Tesco shopping centre in West Bromwich originally scheduled for completion in 2012, has been delayed to 2013. At present next year is expected to see the lowest annual provision of new shopping centre space in the UK for more than 50 years.

Activity should pick up in 2013, with Trinity Leeds providing 93,000 square and a handful of other projects under construction and several others at the planning stage. However, activity is unlikely to match the levels seen in 2005/2008.

Overall, occupiers remain cautious, says the report. Retail sales have been sluggish this year, strong annual growth in January and April notwithstanding, and several high profile players entered into administration in recent months. However, selected retailers are expanding, and demand for space in high-quality, regionally dominant schemes is still strong.

‘We predict an upswing in development activity towards 2015. The key for developers is not to oversupply and to ensure that new space is designed to meet specific retailer requirements. There is definitely more of an appetite for development in the market. In the meantime we are advising more landlords on refurbishments and extensions on existing schemes to satisfy market demand and improve tenant mix,’ said Toby Sykes, partner for retail services at Cushman & Wakefield.

Kristina Gorkovskaya, research analyst in Cushman & Wakefield's European Research Group, said that whilst current data shows that completions will come to a virtual standstill in 2012, demand for prime retail space remains resilient. ‘Indeed, it has been reported that Stratford City opened 95% let. The limited supply of new space coming onto the market should support prime rental levels going forward, although further polarization between prime and secondary schemes looks likely,’ she explained.

Investment transactions totalled nearly £3 billion in the first half of 2011, a 32% increase on the previous six months and 129% up on the corresponding period of 2010. A total of 30 shopping centre transactions were recorded, including five over £100m. However, the volume figure is skewed by Capital Shopping Centres’ £1.6 billion acquisition of the Trafford Centre in January, the largest single asset property deal ever recorded in the UK.

Yields remained stable across all shopping centre categories in the first half, with the prime regional yield ending the year at 5.5%.