Mall owner CSC signals shop rent rises

By This Is Money
Updated: 08:01 EDT, 23 February 2011

Shoppers and retailers are cautious in the face of spending cuts, inflation and tax hikes but the UK will dodge a double-dip recession, predicts landlord Capital Shopping Centres.

Expansion: CMC added Trafford Centre to its mall portfolio last month

Britain's leading shopping mall owner warned it was a challenging time for businesses and a period of low growth was the likely scenario.

The company, which bought Manchester's Trafford Centre for £1.6bn last month, nevertheless signalled plans to push up retail rents.

The owner of mall locations including Lakeside and Gateshead claims fewer new developments are set to drive competition for shop space.

It suggested prime centres would continue to thrive at the expense of high streets and poorer retail destinations, with retailers likely to focus expansion on consumer hot spots. CSC said it had already seen signs that this was pushing up rents at the end of 2010.

'The strongest destinations are growing stronger as UK retail trade continues to concentrate,' said chairman Patrick Burgess.

'With supply of new centres severely limited, successful UK and international retailers looking to their growth plans for the next couple of years are increasingly likely to compete for high profile, good quality space in those best centres.'

Capital Shopping Centres Group returned to the black in 2010 with pre-tax profits of £446.2m compared with a loss of £119.5m in 2009. Its net rental income from continuing operations was up 4% at £277m.

Burgess commented that a 'measure of confidence returned in 2010'.

But he said: 'It is clear the UK faces a series of challenges over the next couple of years and retailers and consumers remain cautious, not least about the effects of public sector austerity measures, tax increases and the price of commodities including fuel,'.

And he added: 'Our present view of the most likely outcome is that the UK will experience a period of low growth rather than a “double dip”.'

Rival shopping centre owner Hammerson, which owns the Bullring and Brent Cross, also sounded a warning this week about the possible fallout of the VAT hike and government cutbacks on retailers.

But it was concerned that austerity measures could lead to its shop tenants having problems keeping up with rent.

Retail expert Matthew McEachran of Singer Capital Markets warned CSC's comments about competition could mean rental woes for many chains.

He said: 'The trend for retailers over the last two years has been much more benign than it had been pre-credit crunch, so if they do demand and succeed in driving the reviews up, this would clearly be a negative for the sector and the main tenants, including Marks & Spencer, John Lewis and House of Fraser.'

CSC, which owns 14 UK shopping centres, recently fended off a bid from shareholder Simon Property Group following a row over its purchase of the Trafford Centre.

US mall giant Simon claimed the bid price was too high and that the deal undervalued Capital by giving away shares to Trafford owner Peel Holdings, which is controlled by billionaire John Whittaker.

Simon instead attempted a £3bn takeover of CSC, but walked away after failing to gain access to its books.

Shares in CSC fell 3.8p to 380.6p in trading today.