Welcome to The Subplot, your regular slice of commentary on the North West business and property market from Place North West.
- Stockport has a once-in-a-generation chance to kick its property market into the premier league. Can the town grab it?
- Crazy golf, axe-throwing and ‘competitive socialising’ will be one of the big winners from the pandemic. We ask which North West towns will see growth and who will cover the costs?
- Subplot discovers that last year’s Manchester arena row looks different when you study financial results released last week.
STOCKPORT’S OPEN GOAL
Coronavirus has delivered Stockport a chance to score as the economy reopens. Until then, the council has to keep the ball in the air. Can it manage it?
Last week the 3.3-acre site of Stockport’s Sainsbury’s was sold to Amstone Ventures. A £100m build-to-rent residential scheme is now planned. The sale came barely six weeks after the store closed: property markets don’t get much hotter than that. The same pandemic that has checked enthusiasm for mega-city Manchester has done a corresponding favour to town-sized Stockport. The borough now markets itself as a kind of giant urban business park with a 30%-plus price discount. This is an acceleration of a trend that was apparent to developers like Muse Developments and Capital & Centric long before anyone heard of Covid-19. But the most dangerous moment for any venture is when things begin take off. Stockport is at that point now, ahead of a June ‘un-lockdown’.
The difficulty Stockport faces is nicely summed up by Orbit Developments, the owner of around a third of the town centre’s 1.5m sq ft of lettable office space. The company’s leasing director Rhys Owen says: “The risk is, what if it all stops? For instance, post-lockdown you need people to work in the town centre for the pubs and restaurants to survive, and you need the amenities to be there before people will come back to work in the town centre.” Owen says the council has to keep the town centre’s leisure offer alive, and confidence up, until the local economy is strong enough to do the job itself. If it fumbles the ball, the town centre’s newly-confident office sector will flop.
The crowd holds its breath
Does Stockport Council grasp the risk it’s running? David Meller, Stockport council’s Labour cabinet member for economy and regeneration, says it certainly does. Meller says: “The town centre is now more leisure- than retail-focused, so yes there’s a risk. We’re on the transition from retail to residential and leisure and will be exposed if the leisure sector fails, or fails to open.” Meller’s answer is to explore ways to smooth the leisure sector’s reopening, perhaps by picking up the upfront capital costs that long-dormant leisure businesses cannot afford.
Have half an orange
Says Meller: “We’re getting the Market Place ready for the 12 April hospitality opening, so that means seating for the restaurants and pubs in the vicinity. It’s not a certainty but we’re looking at using some government funding to put do that. Nothing is off the table.” The council has allocated £2m for economic recovery (on top of £3.4m of grants already paid), with independent businesses at the heart of this work. There are proposals to support the ‘Stockport Pound’ and help ensure that what gets earned in Stockport stays in Stockport. “We hope to say more on this shortly,” a council statement said.
No tripping or fouling
The council is also alive to a second risk faced by successful locations: that the boom-town atmosphere sucks in players or proposals that are unviable or unwanted, and that sooner or later one of them fails, in the process pricking the town’s bubble of confidence. “The relationships we’ve built up with developers are strong, but you can only go so far,” says Meller, who does not rule out using Manchester-style strategic regeneration frameworks, and other policy tools, to help shape the future. “We don’t want any old development going up,” he says.
He shoots, he scores
Meanwhile, get ready for phase five of Stockport Exchange. Stockport Council has committed to the fourth, 65,000 sq ft, phase of Stockport Exchange, which will hopefully be on site later in the year. The council said it is “confident that the future phases will continue to be delivered at pace.” Subplot understands that Muse and the council are now looking at funding approvals for further phases, whilst in the background the council nurtures 1m sq ft plans for the new station business district. Some observers think progress on Glenbrook’s 64,000 sq ft Marks & Spencer retail-to-office conversion has been slow, but Glenbrook say that’s an optical illusion caused by most of the work going on out of sight. Practical completion for the developer’s STOK project is due on 23 November.
Conclusion: Stockport will be a winner, but poor support for local businesses could sap confidence and slow progress.
DRIVING THE WEEK
From crazy golf venues like Swingers (left), to ping pong and axe throwing, competitive socialising is likely to be one of the big winners in post-lockdown leisure. How much is coming the North West’s way, and who will pay for it?
Cain International, the private investor led by Jonathan Goldstein, first invested in Swingers in late 2018. Today, that is looking like a wise move. Last week, Cain announced the crazy-golf-meets-street-food bar chain’s $20m expansion from the UK to the US. It’s a fairly typical story in a fast-expanding sector that appeals to the Instagram-happy, vaxxed-up18-30 demographic most likely to start spending when the lockdown ends. Better still, big spaces which allow groups to have fun without bumping into other groups is a social-distancing heaven.
Rule of six
Half a dozen requirements from various operators are now preparing to land in the North West, with openings in Liverpool, Manchester (keep your eye on the revamp of Kendal’s basement and City Tower), Preston, Chester and even Lancaster. More will follow in the cities and university towns because this is a classic case of an opportunity arriving at just the right time.
Feasting on a corpse
The fast-forwarded death agonies of the UK high street provide competitive socialising with just the 10,000sq ft -15,000 sq ft high street premises the concept needs. It’s a real gift for retail and department store landlords in a hurry to repair rent rolls. The good news is that landlords are managing to extract reasonable rents (£15 a sq ft plus) and long leases (15 years). The bad news is, this comes at a cost.
Sharing the fun
North West landlords suddenly find themselves making ‘best friends forever’ out of businesses with little or no track records. Capital contributions to the BFF’s fit-out hover around £400,000-£500,000, rising to £750,000 in some cases. This comes on top of a 12-18-month rent-free period. If competitive socialising is just a floor filler, then it’s a risky and expensive one in a market with a lot of breadth and little depth: Savills data, sourced before the pandemic, shows 170 operators, 340 locations, and just three brands with more than 10 sites.
Just chill, ok
Or is it such a risk? Most operators think they have scalable concepts, and many landlords agree. Ross Kirton, head of UK leisure at Colliers, says: “These days what is a covenant? Landlords are more likely to look at an operator’s business plan, ask if it is well thought out and if they believe in it, to ask if there is funding, rather than to look at a potential tenant’s account history or credit scores.” So powerful is the appeal of competitive socialising that traditional bar concepts are losing out to the newcomers in straight fights for licensed space (Roxy Ball Room beat a bar operator to take the 12,000 sq ft Bird Cage unit at Shude Hill).
Of course, some caution is required. One leisure sector insider shared with Subplot the fear that keeps them awake at night: competitive socialising will go down the same private equity-fuelled over-expansion as casual dining. “A real threat,” they said. And some concepts are more far out that others: it is difficult to see the notion of cocktail-fuelled adults diving into a tank of a million plastic balls surviving a Covid-secure risk assessment.
Conclusion: Short-lived post-pandemic fad or solid long-term prospect? By this time next year we will know whether landlords chose wisely.
IN CASE YOU MISSED IT…
Arena row revalued
How much is a mega-arena worth if it has been closed for a year and will reopen in June to face imminent competition from a new local rival? Results last week from Manchester Arena owner Secure Income Reit tell an interesting story.
It is just three years since Secure Income Reit, the investment trust managed by North West favourite Nick Leslau’s Prestbury Investments, bought Manchester Arena for £436m. The eight-acre venue is the UK’s largest. Last September, Manchester City Council awarded planning permission to US-based arena operator Oak View’s plans for a separate 23,500-capacity venue near the Etihad Campus in the teeth of commercial opposition. The scheme’s promoters claim it will bring £350m of extra investment, but operator AMS led a campaign claiming that the new arena would be damaging to the city centre.
Rent? No problem!
Missing or reduced rent payments would be the obvious first sign of commercial vulnerability after such a difficult year. But Secure Income Reit (SIR)’s figures, published last week, show the arena’s operator is paying its £4m a year rent. The arena is let to SMG and SMG Europe Holdings, part of ASM Global, with 24.5 years unexpired without a break clause from 31 December 2020. The annual rent is reviewed annually every June in line with RPI, collared between 2% and 5%, which in 2020 resulted in a rental increase of 2.0%. “All arena rents have been paid when due,” the report says.
SIR’s asset valuation tells a similar story: as of 31 December, SIR’s entire portfolio was valued at £1.95m, down just a shade of £2.08m in 2019). Subplot is told the arena’s valuation, which is not separately itemised, takes into account the threat of new competition. Given that this slight drop also includes theme parks like Alton Towers, and much else, it suggests the arena’s value has held up well.
Meanwhile, Subplot has learned that ASM is relaxed about the threat of competition from the new Co-op Arena. The operator “usually has a competitor stadium so whilst the new development is not welcomed, where there are competing arenas the net market place tends to grow considerably,” one very well-placed source says. Perhaps this puts last year’s daggers-drawn planning row into a new perspective?
The Subplot is brought to you in association with Cratus, Bruntwood Works, Savills and Morgan Sindall.