Despite the recession, the UK’s first factory outlet for a decade is coming to fruition at Gloucester Docks.

In the coming months, which will be filled with uncertainty, expect to hear ‘countercyclical’ used in connection with Gloucester Docks. Over the past 20 years developers have slowly converted tall, gaunt flour mills into museums, flats or offices for Gloucester City Council. But this development did little to make the people of Gloucester believe they had a new quarter to their city – Gloucester Docks did not attract the superlatives of other UK waterside developments. Now the docks, cut more than 180 years ago into a canal that leads to the Severn and the Bristol Channel, are witnessing more activity than at any time since the flour mills were busy following the repeal of the Corn Laws.

Manchester-based developer Peel Developments and British Waterways are five months away from the opening of Gloucester Quays, a 220,000 sq ft factory outlet – the first to open in the UK for a decade. Meanwhile, Travelodge is opening a 96-bedroom hotel, Sainsbury’s is developing an 84,000 sq ft supermarket and Gloucester-based insurance company Ecclesiastical will relocate to bespoke offices at Gloucester Docks (see boxes, below). Peel, a private company that developed and owns Manchester’s Trafford Centre, never set out to be countercyclical in the development strategy for its Gloucester scheme.

However, it took eight years and a public inquiry before the Communities and Local Government department granted planning consent for Gloucester Quays in summer 2006 – and only on the condition that the factory outlet sold everything for at least a 30% discount, in a measure designed to protect retail redevelopments in the city centre.

Perfect timing

The timing turned out to be good, for as soon as Peel gained approval, it negotiated the financing with its usual funding partner, HBOS. The cost of the entire development, which includes two hotels, offices and housing, is £400m, of which £140m is to be spent on the outlet itself. Peel is about to announce the names of the retailers and manufacturers that will sell their excess stock at Gloucester Quays. Speaking a day before leaving for the MAPIC retail conference in Cannes, where many of the deals were to be finalised, Gloucester Quays director Franco Muccini said that two-thirds of the space was under offer or in solicitors’ hands. Marks & Spencer is the first tenant, having announced this summer that it would take 10,000 sq ft, the biggest unit available. It is the first time M&S has taken a prelet on a new factory outlet. The retailer did not move into the sector until 2000, by which time a wave of factory outlet development had just come to a halt, and outlet operators had to move existing tenants out to make way for M&S.

M&S will take more space than it has in any other factory outlet – but there is a lot of space to fill at Gloucester Quays. As Muccini points out, with the 220,000 sq ft outlet and 25,000 sq ft of restaurants, the scheme will be one of the UK’s largest factory outlets. ‘It is the biggest opening of space compared with any other outlet,’ he says. ‘We are opening all our phases in one go. Cheshire Oaks is bigger than us, but that opened in five phases.’ In the next few weeks, Peel will announce some of the tenants that have taken a total of 20,000 sq ft: Le Creuset, the French cooking-pot company, and cafe chain Costa Coffee, are among those to have signed leases. The rents are difficult to quantify, because retailers have negotiated individual deals, including differing proportions of turnover as rent. But Muccini says an average base rent is £30/sq ft.

As he walks round the development site, he points to the polished granite floors that have already been laid. The ceiling, Muccini says, will resemble the vaulted splendour of Peel’s Trafford Centre in Manchester. Even six months before opening, it is evident that Peel wants to replicate the glitz of Trafford, even though this is a factory outlet, where building costs are generally lower. Unusually for a factory outlet, the development is multi-level. Another unusual aspect of the scheme is that a fifth of the space is being developed within listed warehouses that adjoin the newly built malls and the multistorey car park, which has 1,400 spaces.

In one listed building, Peel had to persuade planners to allow it to remove every other one of the 18 columns, as they were too close together to leave enough space for modern shop entrances. As we will still be in a recession when Gloucester Quays opens in May, it is debatable how shoppers will respond to the scheme. But Muccini insists: ‘Factory outlets in America are still strong, despite the downturn in retailing. People don’t want to lose their lifestyle and their association with a brand – they just want value for money.’

The bigger loser could be Gloucester city centre, a 10-minute walk away, where Morley and the city council have plans to redevelop the 1970s-built Kings Walk as Kings Quarter. Mark Brunsdon, a GVA Grimley director who advised Peel on its development, says: ‘Gloucester Quays will have some impact. But I see a parallel between Cribbs Causeway and Cabot Circus in Bristol. Cribbs Causeway made Bristol wake up and get on with Cabot Circus.’ For Gloucester, the first wake-up call will come on 28 May, when the city’s shoppers will discover discounted brands and restored heritage in one location.

By Christine Eade

http://www.propertyweek.com, 05 december 2008