Cost model: Shopping centres

<b><FONT SIZE=”+1”>Shopping centres return to the high street</FONT></B>Shopping centres are particularly attractive to developers and investors because of their resilience and diversity compared with individual high street properties. Unlike the high street, where the concept of the “business improvement district” is still in its infancy, the shopping centre environment can be easily controlled, branded and actively managed to add value for customers, tenants and investors. Although 11 of the UK’s top 20 shopping centres are in the centre of towns or cities, recent shopping centre development has been driven by the development of out-of-town regional shopping centres and factory outlet centres. Figures available for 1999-2000 show that the amount of lettable floorspace in shopping centres increased nearly 10%, to about 21,000,000 m2 over the two-year period. According to the British Council of Shopping Centres, more than £685m was spent on the construction of purpose-built shopping centres and retail parks during 2000 alone.

<b><FONT SIZE=”+1”>The role of shopping centres in cities</FONT></B>The principal role of a shopping centre is as a focus and stage for retail and leisure activity. By providing the appropriate mix of shops and leisure, a shopping centre will help to ensure that a city has the right retail offer to meet the needs of its population. Attracting customers and encouraging them stay will, of course, benefit the tenants and, by extension, the centre’s owner.
However, shopping centres do not function solely as a retail destination. They are workplaces, meeting places and, as leisure becomes an increasingly important component of the tenant mix, places to entertain, socialise and enjoy on their own account. To be successful, a centre should accommodate the correct mix of uses, attract the right tenants and provide a safe and attractive place to visit. These qualities attract customers and assist in creating a wider sense of community. Creating successful public spaces and establishing links with surrounding areas to maximise permeability are important design issues that can affect the long-term performance of a development. Space use and access issues that need to be addressed as part of the design include the following.
<b>Civic space</B>
The development of shopping centres provides an opportunity to formalise public space, generating a new urban fabric. This new space can either reinforce or change the existing patterns of space and activity within the city centre.
Good quality space is an attraction in its own right, encouraging people to return to the centre. Large-scale developments provide the opportunity to create new public spaces, which can be used as part of an overall strategy to integrate cultural activity throughout a town centre.
<b>Activity space</B>
Shopping centre developments create a network of internal and external spaces, suitable for differing uses from shopping and leisure through to festive or civic uses. The development of a shopping centre as part of a wider mixed-use scheme will encourage safe, self-policed 24-hour activity into the city centre. Key components of a mixed-use development include residential, office, retail and leisure uses.
<b>Access and transport</B>
Good access is a vital contributor to a shopping centre’s success. Town centre development provides an opportunity to improve the existing transportation and circulation network. Currently, the needs of the motorist cannot be ignored, as more than 60% of shopping centre users arrive by car.
However, government policy is encouraging greater use of public transport together with the consideration of the needs of pedestrians and cyclists. Consequently, positive solutions to access problems are required. These include a combination of good quality, accessible parking, disabled drop-off points and good links to public transport. The integration of alternative forms of public transport, such as light rail or guided buses, also need to be considered. Developers may be expected to contribute to public transport through the planning gain system.

<b><FONT SIZE=”+1”>The changing world of retail</FONT></B>Retailing is the definitive fast-moving business, with changes being driven by customers’ aspirations as well as their needs. Competing products and the rise and fall of brands dictate the success of retailers and their goods. The contrasting fortunes of struggling mid-range chains such as the now-defunct C&A, and dynamic niche players such as Zara and O’Neill, show it is vital to be able to respond quickly to market trends.
One of the main drivers for the redevelopment of in-town retail is the need to provide shop units that are large enough to meet the needs of modern retailers. Although most retailers require units of 2000-3500 ft2, there is also a growing requirement for larger units to accommodate the “megastore” concepts now preferred by many chains.
Customers expect improved quality and value, wider choice and better service. In the mall itself, shoppers want entertainment and diversion, together with longer opening hours. The quality of facilities, catering and entertainment provided by leading centres such as Bluewater in Kent have set new levels of expectation that need to be met, irrespective of a centre’s location. This development is well illustrated by changes in the food offer. Food courts have fallen out of fashion on all but the largest schemes, and are being substituted by a more dispersed and cosmopolitan range of coffee shops, juice bars and restaurants, aimed at satisfying the demands of an increasingly sophisticated customer base.
Shopping centre attractions are also being diversified through the addition of leisure facilities and longer opening hours, aimed at increasing the amount of time shoppers spend in the centre. Visitors also expect good quality facilities, such as toilets, shop-mobility and facilities for the disabled, together with cash machines and left luggage points.
<b>Brand awareness</B>
The public has a much greater awareness of product and brand, and know where to find what they want. Retailers have responded to this heightened awareness by focusing on their brands, and in some cases by introducing “multi-channel” shopping (shop, catalogue and internet). As branding is the quickest route to establishing a distinct identity, shopping centres, town centres and major retail destinations such as Oxford Street are also beginning to exploit the power of their brands. In the USA customers expect shopping centres to have their own websites, providing the ability to shop at the “virtual mall”. However, most web investments by UK shopping centre operators have been put on hold following the collapse of confidence in e-commerce.
<b>Tenant power</B>
In many UK markets, the balance in power between tenants and operators is changing. Rental growth is falling and in some cases, upward-only rent reviews are being challenged. Powerful tenants such as the anchor stores and major chains have great leverage in their negotiations, while interesting niche tenants are also a vital element of the retail mix, providing variety and helping to differentiate shopping centres from the high street and other competitors.
Landlords still insist on break clauses to be able to remove underperforming tenants. Turnover rents are being used more widely, both for established retailers and to enable tenants with a limited covenant and trading history to be tried out.
<b>Product diversity</B>
The range of products and services sold on the high street has increased dramatically. Greater market segmentation is also occurring as retailers focus on the specific needs of particular niche markets: cash-rich teens, time-poor adults or the opportunities represented by the grey pound.

<b><FONT SIZE=”+1”>Planning issues</FONT></B>The Braehead Centre, which received planning consent before the introduction of revisions to government planning guidance PPG6, is the UK’s last major out-of-town development. Revisions to PPG6, aimed at strengthening town centres by restricting out-of-centre development have refocused planning and development activities onto more complex urban brownfield sites. Currently it is estimated that 90% of retail proposals are for town centres.
The application of PPG6 is also encouraging the integration of retail schemes into urban regeneration programmes. Large developments such as shopping centres create a focus of investment and activity, which can facilitate further regeneration in surrounding areas. Accordingly, the planning of a shopping centre can be used to create benefits for the town centre, such as stronger pedestrian flows, or to kick-start redevelopment in adjacent areas.
The development of shopping centres in city centres involves a range of development, planning and design challenges. These include site assembly, the creation of new civic space, the encouragement of mixed use, and the management of the impact of the development on existing transport networks, retail and so on.
Permeability – the degree to which a centre is accessible and connected to it’s surroundings – is a key concern of designers and developers. As a result, alternative approaches to shopping centre design are being considered to minimise the impact of large self-contained schemes, integrating modern retail space and mixed uses into the existing fabric and layout of town centres. Open malls, which can accommodate a wider range of uses, creating a more varied townscape, and which can be designed to complement the existing urban fabric, are also being considered as a viable alternative to the conventional enclosed shopping centre. The pros and cons of these alternatives are discussed later in this article.

<b><FONT SIZE=”+1”>Design issues</FONT></B>There are a wide range of design fundamentals that need to be addressed to ensure good performance of the proposed centre. Design issues that are particularly important include:

• <b>Weather protection</B> Protection from the elements, in either closed or open mall configurations, is very important to customers. Open malls require partial cover using either walkways or canopies. A major advantage of open malls is that there is minimal loss of natural light. Furthermore, depending on layouts, a greater degree of visual contact with the centre’s surroundings can also be achieved.
• <b>Single and multilevel design</B> Providing an even pedestrian flow on multilevel malls is difficult to achieve, and the organisation of store units, attractions, lifts, stairs and escalators will be aimed at distributing shoppers throughout the centre. Achieving this flow is easier in out-of-town centres, where shoppers can be directed into any level directly from car parks.
• <b>Structural grids</B> The structural solutions required for mixed-use shopping developments can be very complex. The different grid sizes required for retail units, service yards, offices and dwellings mean that costly transfer structures may be required. The greatest problems are associated with units for major space users and service yards, where spans of up to 15 × 15 m are required.
• <b>Entrances</B> These need to be distinctive, particularly on visually crowded high streets. Canopies, towers and extesive signage are used to clearly differentiate entrance areas. One problem is that dramatic entrance treatments can overshadow adjacent shops. In extreme cases, they can suffer poor sales because they are passed by without being noticed. Long entrance corridors to parking and transport interchanges, which need to be made more lively, also create a challenge for designers.
• <b>Flexible shop units</B> The capability to retro-fit mezzanine floors into retail shells increases flexibility, providing additional space for sales or storage, enabling units to be offered to a wider range of retailers, or for existing retailers to expand without relocation. Storey heights need to be increased by between 2 m and 2.5 m to provide the additional headroom, and frames and foundations need to be sized to accommodate the additional loads.
• <B>Security</B> This is provided by the fabric of the centre, it’s service installations and through the actions of management. Security problems are more acute for town centre developments. Enclosed centres generally feel more secure, and in open centres, a more overt approach is needed. Good quality lighting, highly visible CCTV coverage and a high profile security presence can be combined to provide the appropriate level of security.
• <b>Car parking</B> Provision of this facility for town centre shopping malls can be a make-or-break issue. Local authorities have great concerns about congestion and want to reduce parking provision. Although more investment in public transport and park-and-ride schemes is being made, it will take a number of years before most shoppers choose to use public transport. In the meantime, developers need to achieve a careful balance between providing enough spaces and controlling development cost. In some very constrained sites, basement parking may be necessary, costing 3-4 times more than multistorey parking. In these instances, the high costs of parking may affect the overall viability of a scheme.
• <B>Access Good</B> access and the segregation of people and traffic is important. Rationalisation of goods delivery provides a significant benefit to the town centre because they take HGVs off the high street. Providing well-sized and well-designed service facilities will contribute to the efficiency of store deliveries and will reduce queuing and congestion.

<b><FONT SIZE=”+1”>What makes a shopping centre work?</FONT></B>Shopping centre development involves a complex balancing act between the needs of developers, tenants and consumers. Getting the concept right first time is essential. Poor initial performance or an inappropriate mix of uses can be difficult to correct without the need for substantial reinvestment. Key factors necessary to ensure the successful development of a centre include:

• Excellent direct pedestrian links to existing prime retail areas, together with good access to public transport links.
• An unimpeded pedestrian circuit within the mall, both vertically and horizontally, with good views of shops and amenities.
• A critical mass of retailers to ensure that the centre is attractive, competitive and sustainable.
• A tenant mix that complements and contributes to existing retail provision, and which gives shoppers as many reasons as possible to visit the centre. A range of complementary retail and leisure activities will also enable opening hours to be extended, ensuring round-the-clock activity.
• A range of cafes, bars and restaurants to satisfy all market segments.
• Centres should include at least one department store as an “anchor”. This must have the size, range of goods and reputation to act as a centre’s main attraction. Centres are typically designed on the “dumb-bell” model with anchor tenants at each end.
• Unit sizes suited to a variety of tenants including outsized units for chain and international retailers and small shops for specialists.
• The ability to reconfigure retail space to respond to tenant requirements.
• A high-quality, secure environment in terms of architecture, materials, landscaping and street furniture.
• Experienced and motivated centre management.
• Well-designed, adequately-sized public conveniences together with high quality facilities for children and the disabled.
• Good road access together with sufficient, nearby car parking.
• Easy goods access together with well designed and appropriately sized service areas.

<b><FONT SIZE=”+1”>Enclosed malls or open centres?</FONT></B>The return of the focus of shopping centre development to city centres has re-ignited the debate as to whether the enclosed mall is the most appropriate retail solution for urban sites.
Enclosed malls have long been the preferred option, providing a controlled, secure environment that is easy to manage. Covered malls are ideal in out-of-town locations, where enclosure helps to create a sense of place amid a sea of car parking. By contrast, enclosed town centre shopping developments may not work as well, often failing to relate to their surroundings, either in massing terms, permeability or co-ordination with pedestrian flows. This lack of integration can affect the attraction of a centre, potentially reducing retailer profitability and the centre’s end value.
Open centre solutions are actively being considered for a number of major urban locations. The pictures at the bottom of the page show two schemes for Chavasse Park in central Liverpool, which is the subject of a complex development process. The scheme on the left is an enclosed mall, proposed by developer the Walton Group. The Grosvenor Henderson scheme on the right is an open arcade.
The principal advantages and disadvantages of covered malls and open centres are set out in the table to the right(enclosed malls or open centres?)

<b><FONT SIZE=”+1”>Procurement issues</FONT></B>The key issues for shopping centre procurement are programme certainty, reduction of the overall project duration, early release of units for fit-out and minimisation of disruption to adjacent shops.
Procurement routes that allow the overlapping of design and procurement activities are appropriate, with construction management and two-stage design-and-build being the most common options. Construction management is the preferred option for large regional schemes, where design and construction must overlapped to achieve an acceptable programme. On schemes of up to 100,000 m2, the accelerated procurement of lump sum contracts is possible, based on two-stage design-and-build, which delivers time and cost certainty, together with control over quality of design.
On design-and-build projects, because of the likelihood of design changes during construction, it is advisable to agree a schedule of rates in advance for the agreement of variations.
Liaison with anchor tenants is a key issue for the developer, and the selected procurement route should make provision for tenant input into shell design and construction, and early access for fit-out works.

<b><FONT SIZE=”+1”>Cost breakdown</FONT></B>The cost model compares the construction costs of two options for a mall serving a major city centre shopping development:

• Enclosed, air-conditioned mall,
• Open arcade with canopies.

The dimensions and overall design concept for the two options is kept constant, so that the costs are directly comparable.
The cost model focuses on the costs of the mall only. Costs of retail shells, public toilets, food courts, the management suite, landlord’s areas and service yards are excluded. The costs reflect a high level of specification, appropriate for a prestige, city-centre scheme.
The two-storey mall has a gross floor area of 7000 m2. It forms part of an overall shopping centre development with a GFA of 60,000 m2, anchored by a major department store of 20,000 m2.
Costs are current in October 2001, based on a location in south-east England. Costs of external works and services, design fees, statutory
fees and VAT are excluded. The level of pricing assumes a two-stage competitive tender, for a design and build contract. Costs are based on a single phase programme.
Adjustments should be made to the costs to account for variations in phasing, specification, site conditions, procurement route, programme and market conditions.