The Road To Wigan Shopping Centre: George Orwell Updated
Every generation has its light-bulb moments: published in 1937, George Orwell's socialist hymn The Road To Wigan Pier set the tone for mid-20th century politics. Owell's examination of working-class life in Lancashire arguably helped to fertilise Britain's post-war welfare state.
Today, turn your footsteps not toward the pier (which does not in any case exist, and possibly never did) and head for Wigan's 425K SF Grand Arcades shopping centre for a new and pressing parable about working-class life in Lancashire. Only this time it is not the death of heavy industry and the culture it supported, but the death of a certain vision of what a town is.
Grand Arcade's owner RDI Reit has breached lending covenants on four shopping centres including Grand Arcades. They are financed by a long-term fixed rate debt facility with Aviva Commercial Finance. The debt has an outstanding balance of £144.7M, a fixed rate of 5.5% a year and is long-dated to April 2042, Property Week reported. The loan-to-value ratio of the debt is 89%, against a covenant of 85%.
The latest crash comes almost exactly 10 years since the last crisis to hit Grand Arcade, a crisis that felled a number of shopping centres just like the current retail shake-out.
The vehicle set up by retail developer Modus Properties to develop and hold its Grand Arcade shopping centre in Wigan was placed into administration in late spring 2009, in the wake of the credit crunch. At that time the largest secured creditor was Norwich Union, now Aviva.
At the time Modus bosses said the centre, completed in 2007, was victim of “national corporate failure” within the retail sector. Back in 2009 the centre was faced with a rash of failures among retail tenants, many of whom fell into administration. Today in April 2019, with retailers dropping like flies and Grand Arcade anchor tenant Debenhams forced into administration this week, that story sounds eerily familiar.
Just as Orwell diagnosed deeper structural problems at the root of the misery he observed, so the story of Grand Arcades reveals something not very good at the heart of the shopping centre development business.
Not only have two of Grand Arcades' owners suffered financial problems, but the centre opened up to its ears in potential problems, as reports published by administrators revealed.
Despite being 95% let, Grand Arcades quickly ran out of cash because (said KPMG, administrators after the 2009 collapse) many of the tenants including anchors Debenhams, Marks & Spencer and BHS, were on rent-free deals costing the landlord £14.1M. This created a financial problem no amount of successful trading could close.
The rapid slide in the fortunes of those costly anchor tenants, the names once expected to pull in the punters but who now have much reduced pulling power, simply crowned an already sticky situation. BHS went into administration in 2016, Debenhams followed in 2019, and Marks & Spencer is in the doldrums long-term.
But behind the anchor-tenant problem was the long-term suspicion that the Grand Arcades was simply too big for Wigan's modest retail set-up. Long before work on site started in 2005, the development had some tumultous ups and downs including, in 2002, the decision of development partner Wilson Bowden to pull out of the scheme in the face of doubts about Wigan's retail capacity.
When Redefine (now RDI) acquired Grand Arcade in 2010 it looked like things might improve. But since then a new threat has arrived: the nearby economic super-powers of Manchester, and to a lesser extent Liverpool, have helped to hollow out Wigan's economy, and with it the town's retail sector.
Wigan MP Lisa Nandy is among those arguing that the focus on city regeneration has left smaller towns behind, with Wigan a prime example. The Brexit referendum of 2016 brought the plight of (mostly Leave-voting) left-behind towns into focus.
Grand Arcades: too big, bad timing, wrong location? Maybe. Unviable from the start, and tipped over the edge by e-commerce which nobody could have forseen in 2002, 2005 or 2009? Possibly. Another victim of Brexit Britain's all-embracing crisis? Perhaps. But it is certainly a clear lesson in how retail property decision making has gone wrong time and again over the last two decades.