The Subplot | Wilko lessons, Liverpool’s Spine, flex makes money

Welcome to The Subplot, your regular slice of commentary on the business and property market from across the North of England and North Wales.

THIS WEEK

• The doubtful future of the 400-store Wilko discount chain poses a challenge to Northern high streets. But there is hope
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

WILKO LESSONS

A bad time for high streets just got worse

Wilko’s woes place a question mark over 2.5m sq ft of Northern retail floorspace. With retail still on its knees, and a cost-of-living crisis beginning to bite, does anyone want it?

Four bidders (probably) met yesterday’s deadline to acquire Wilko and its 400 UK stores (around 100 of them in the North). B&M, Poundland, Home Bargains, and The Range were reported to be in the frame. It’s hard to believe – given the location of their own stores – that any potential owner will want to keep all Wilko stores open. Maybe all of them will close.

Numbers, please

Some facts. The average Wilko store size is 25,000 sq ft, and about four-fifths is on the high street or in shopping centres and precincts. About one-fifth of the Northern portfolio is in retail parks, according to CoStar data. The impression is that most leases are relatively short-dated: five years or 10 years with a break at five, and a few at 15.

The good stuff

The focus of interest will be out-of-town. “The floorspace within retail parks is likely to attract the strongest interest from other retailers. However, the remainder of shops are on high streets and in shopping centres, where footfall has tended to be lower, and units previously occupied by the likes of Debenhams or Arcadia brands have taken longer to re-let,” Giles Tebbitts, CoStar Group’s director of market analytics in Manchester, tells Subplot.

Woolworths revisited

As for the 2m sq ft of Northern high street floorspace, there are two recent precedents for large-scale retail collapse. Debenhams folded in 2021. Since then, many of its stores – well located, big, interesting – have been repurposed at pace. Manchester’s Art Deco block is the star example of a long list which includes leisure, build-to-rent housing, and much else. Woolworths, which fell down a well in 2008, saw 807 stores repurposed or re-let but a lot more slowly. “This may be more like Woolworths than Debenhams,” says Allsop’s head of commercial investment Richard Brooke.

The difficult cases

A fairish chunk of that floorspace won’t lend itself to repurposing. “Every asset is different, of course, and where Wilko had a multi-floor building it could lend itself to residential or student housing. But the big floorplates in shopping centres will be harder. That said, Wilko is often well located in town centres or roadside, so there will be interest,” says Brooke.

Show time

So the Northern towns anchored by Wilko stores needn’t give up hope. A vision of the future is already visible in Rotherham, where the 20,000 sq ft store shut in 2022. Rotherham Council bought it (for a song) ahead of demolition. The replacement, a new theatre, sounds nice. Blackpool will be hoping for a similar performance. Wilko signed a 15-year lease on a 22,000 sq ft unit at the council’s Houndshill Shopping Centre (bought in 2019 for a lot more than a song – about £48m). The Wilko deal was part of a rethink for Houndshill.

We are watching

“Whilst the extent of [Wilko’s] insolvency procedure remains unclear, the successful delivery of the Phase 2 project at the Houndshill remains a top priority for the council, and we are in discussions with the tenant to ratify their long-term position within the town centre. We will then reassess our options as necessary,” said a council spokesperson when approached by Place North West earlier this month.

Curtains

Not many tears will be shed for the real losers: a handful of already weakened Northern landlords. If they already had high loan-to-value ratios, and were relying on Wilko rental (and covenant strength) to shore up their position with lenders, then the next few weeks could be the final straw. Loans will sink underwater, covenants will be breached. Today’s habit of virtually real-time portfolio valuations – quarterly, or more frequent – leaves stretched landlords with no way to smudge their balance sheet bothers. Lenders will notice. For some town centre landlords, Wilko’s woes will mean curtains.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Subplot’s twin elevators are both rising smoothly to the good-view floors. Flex floorspace can make money after all, says a Leeds operator, while Liverpool’s Spine dodges a bullet.

Low-impact flex floorspace

Subplot reported last week that WeWork and IWG were struggling to make money from serviced flex workspace. Leeds has turned out to be a laboratory for an alternative approach whose operator insists it isn’t a struggle at all. Spacemade, which partners landlords to create their own branded offering, say it’s going like a dream. Co-founder Jonny Rosenblatt has been in touch to say occupancy at Park House, Leeds, fluctuates between 98%-100% and has done during the two years since opening. He wants to expand in Leeds.

“Until a year or so ago, there was an undersupply of well-managed flex space and this is a definite gap as we’re seeing a strong market of – particularly – young creative businesses coming to Leeds, possibly because the rents are that bit cheaper than London or some of the more established Northern cities like Manchester,” Rosenblatt says.

• Learn more about the state of the office market at Place North West’s Offices + Workspace conference on 11 October. Book tickets.

Spine dodges bullet

The Spine, a 155,000 sq ft of Liverpool City Council-backed office in Paddington Village, has had to take a certain amount of incoming fire. The latest was a Sunday drive-by on the state of the site showcasing graffiti, litter, untidy flower beds. The bigger problem has been 70,000 sq ft of stubbornly vacant floorspace.

That could be about to change. Subplot hears that a 34,000 sq ft letting is in prospect (and it’s not wealth manager Rathbones, in case you wondered). Sources nod and wink towards Cashplus Bank, which expanded into a full floor in May, but public sector/NHS occupiers are also fancied.

More deals will follow. One floor is being divided to provide smaller units. Another three floors – so 33,000 sq ft, give or take – is being fitted out to Cat A or Cat B standard, with rents starting at a shade under £24/sq ft.

The council continues to take a kicking for its approach to property investment and regeneration – see below-the-line comments on the latest effort to ginger up the narrative. But in 2016-2018, when the Spine idea was first brewing, everyone thought it was just the bold forward-thinking move Liverpool needed. Of course, if it had been built on Old Hall Street it would have been fully let long ago, but that’s another story. It’s hardly The Spine’s fault that the city centre new-build market is a mix of daydream and nightmare.

Cllr Nick Small, Liverpool’s cabinet member for growth and economy, confirms to Subplot: “The recent flurry of stories highlighting problems at The Spine are well wide of the mark. The RCP is thriving, as is its award-winning event space. All of the serviced space managed by Sciontec is full – with a number of customers planning to expand -– and of the remaining floors, three are in legals and three are being fitted out to meet current market trends.”