On Thursday last week, John Lewis announced that its profit for the first half of the financial year had plunged as a result of “challenging times in retail”. Somewhat ironically, the previous day saw the construction of the St James Quarter in central Edinburgh, a shopping and leisure complex comprising 850,000 sq ft of retail space to open in two years’ time, reach the halfway stage.
The reason I make the connection is that the store anchoring St James Quarter is John Lewis, which has continued to trade during the demolition of the old centre and its planned metamorphosis. On completion, John Lewis will be one of 85 retail and 20 eating outlets. A multiplex cinema, hotel accommodation and flats are planned for a second stage development.
St James Quarter has been almost ten years in the planning and much water has flowed under the retail property bridge since then – particularly the rise in online shopping, which is said to have contributed to the fall of the House of Fraser and also seems to be negatively affecting that other retail giant, Debenhams.
Consequently, given changing shopping habits will there, in two years’ time, be sufficient consumer demand for this new retail space and, if so, will it mean a diminution of footfall on the traditional Princes Street prime pitch?
Well, to partly answer the question, no: much of the space currently under construction will simply replace that lost when the St James Centre closed down, so it is not going to lead to a mass excess of city centre accommodation. On the other hand, online competition has grown enormously in the two years since its closure, with a consequent effect on the wider city centre, even if Edinburgh seems to have suffered less than cities of similar size.
Therefore, the jury is still out on whether the completed development will lead to the capital being “over-shopped”. However, presuming the take-up of space accelerates as it nears completion (at present, Next appears to be the only other major retail tenant to have signed up) a shift in the retail profile of the city centre looks inevitable. Look at Glasgow, where the Buchanan Centre has sucked retailers away from Sauchiehall Street, once the grande dame of city centre shopping.
Given the proximity of the St James Quarter, that part of Princes Street from Hanover Street eastwards seems secure. However, there could be a drop in footfall west of Hanover Street. I suppose much will depend on whether the new development manages to capture retailers new to Edinburgh or simply “shuffles the pack” among existing operators. This is ironic because back in the 1990s, Princes Street west experienced an upturn in demand as a result of rental pressures on the prime pitch but retailer interest has since tailed off.
This leads to my own area of business and the fascinating prospect of the non-core part of Princes Street being returned to residential use. The thoroughfare’s original purpose was residential, the first occupiers moving in during the 1770s, with shops and hotels appearing at least 50 years later.
Historically, commercial property has always provided better overall net returns for investors than its residential equivalent, but the gap is narrowing (in part due to the downturn in high street retailing) so moving from shops to homes may be the best financial option for under-pressure landlords in the future.
As regards Princes Street specifically, from our experience there has been no shortage of interest from buyers on the handful of residential properties currently located on, or directly off, this thoroughfare, so there should be sufficient underlying demand for any future additions. And, while one immediately associates this market with executive or short-stay lettings, would it not be nice to think that committed, long-term citizens would be given the opportunity of owning a “main home” with a world-famous view located on Edinburgh’s most iconic street?
David Alexander, MD of DJ Alexander.