Centre forward: Landsec interview

Landsec’s Scott Parsons has spent three years pursuing a new retail strategy. He tells Property Week what it entails and what impact it has had.

Three years ago, Landsec embarked on a journey to transform its retail portfolio. Scott Parsons, who moved from his role as head of property for Landsec’s London portfolio to become managing director of the retail side of the business in 2014, has been responsible for driving forward the new strategy.

Under his watch, Landsec has churned 40% of its retail portfolio having made some major acquisitions, including the £696m purchase of a 30% stake in Bluewater in 2014 and this year’s £332.5m deal to buy three outlet centres from Hermes Asset Management, as well as a large number of disposals.

So what was the thinking behind these deals and how has Landsec’s new approach guided its management of the rest of the portfolio?

Parsons’ first steps were to talk to its retail tenants, engage with the consumers who visit its retail destinations, ask a lot of questions and take a forensic look at its assets, then compare them with those of its peers.

His research provided clarity on what needed to be done - the gameplan he devised with his team subsequently led them on something of a daunting, albeit ultimately rewarding, journey.

“When I moved across from the London business to the retail business, we had a portfolio that was dominated by secondary regional shopping centres. Speaking openly, if you looked at our listed peers, our portfolio was probably the most secondary in nature,” says Parsons.

“I looked at secondary shopping centres and they didn’t float my boat so I went on a bit of a mission to move the portfolio from one dominated by secondary assets to one with many of the best.”

Hard graft

He believes the company has been successful in its mission and shown that even a large business like Landsec can make radical changes.

“A lot of people think of Landsec as the industry bellwether and as this big old tanker but I think we’ve shown that even tankers can move quite rapidly,” says Parsons, who points to the Morgan Stanley Retail Index as evidence of their success.

“We ranked bottom of the listed sector two weeks before my appointment was announced. Two years later, we’re at the top - joint top with Hammerson on the shopping centre side and joint top with British Land on the retail park side. Tankers can be moved.”

It did, of course, entail hard graft to turn things around from a quality perspective but Parsons says there was a lot of luck involved too. Landsec’s decision to acquire a 30% stake in Bluewater when the shopping centre came on to the market in 2014 was a defining moment.

“That was a golden opportunity,” says Parsons. “Big, super-prime regional shopping centres don’t come on to the market very often and we had to be bold and decisive - we went for it.

“One analyst commented: ‘Scott Parsons, the new managing director of Landsec’s retail business, who will forever be known as the guy that paid too much for Bluewater.’ And in retrospect, let’s say we were £30m above the pack on a £2.2bn asset.”

Landsec might have paid a premium but Parsons believes it was the right call. After a string of sell-offs that included the £244.1m sale of two assets in Livingstone and the £152m sale of The Bridges in Sunderland, it had money in its coffers and Bluewater was too good an opportunity to pass up.

‘Everything’s experience’

“The way I saw it, it was an opportunity to preserve and upgrade our revenue stream with a much-needed, better quality of income on a better-quality asset,” says Parsons.

“In terms of resilience, Bluewater ticked all the boxes and of course it fitted perfectly with what was our new catchphrase at the time - ‘everything’s experience’.”

Landsec’s newfound focus on experience translated into improvements to tenant mix across its portfolio and an increase, particularly, in the leisure and food and beverage components.

At the time, the majority of UK shopping centres dedicated 4% to 5% of their floorspace to what was often a paltry food court offer, says Parsons. Landsec made the decision to devote a quarter of the floorspace at Trinity Leeds to catering and leisure.

So confident was it in its convictions that, despite the cost implications, it chose to include further restaurant space late in the build process. This model of dedicating a good proportion of shopping centre space to non-core shopping uses - often 15% to 30% - has since been copied by other developers.

Landsec has also applied it to existing assets. “At Gunwharf Quays [in Portsmouth] we’ve managed, just by playing with brand mix and putting in a proper mix of leisure and catering, to increase the sales density of our retail units by 40% over the past five years,” says Parsons. “It’s really made an impact.”

The lease structure of outlet centres such as Gunwharf Quays is attractive to Landsec because it gives them more control over the tenant mix, a driver that was behind its acquisition of three outlets - Clarks Village in Somerset, Freeport Braintree and Junction 32 in Castleford, Yorkshire - from Hermes for £332.5m earlier this year. It is now one of the largest owner-operators of outlet centres in the UK.

Virtuous circle

Gone are the days when a landlord only had to ensure a shopping centre was clean, safe and secure, sign retailers up on a 25-year lease and collect the rent, Parsons says. “Lease lengths are getting shorter and the outlet model is the epitome of that evolution.

If a retailer’s not trading well it’s in both of our interests to get a different retailer in. If they’re not meeting their turnover targets, we can replace them with a retailer that’s more relevant to the consumer and boost their shopping experience.”

At Westgate Oxford - the 800,000 sq ft shopping centre Landsec is delivering in a JV with The Crown Estate - they have pursued a leasing strategy whereby, except for the anchors, all leases are done outside the Landlord and Tenant Act, allowing them more control.

A more hands-on asset management style is something I want to apply to the portfolio as a whole

“The average lease length is about seven years, so the potential for churning brand mix to suit evolving consumer needs is great,” Parsons says.

Having the ability to be more flexible in improving the tenant mix and the experiential nature of its assets is a virtuous circle. If visitors have a better experience, they spend more and the better performing the centre, the better brands and fit-outs it will attract, in turn bringing in more and higher spending consumers.

“That much more hands-on asset management style is something I want to apply to the portfolio as a whole,” says Parsons.

It is that desire for a more active asset management style that has, in part, propelled Landsec to change its recruitment practices. Parsons says it is far less focused on the traditional CV and far more focused on how somebody engages in the interview process, the level of business acumen they demonstrate and how broad their experience is.

Homogeneous sector

“Real estate tends to be, historically, quite a homogeneous sector,” says Parsons. “The average property person tends to be a 43-year-old, white, middle-class male who went to one of three UK universities. I think of the millions of people coming through our doors every day and that is not at all representative of our consumer base. We’re really trying to diversify our talent pool.”

As a result of the rapidly changing nature of retail, Parsons is well aware that Landsec will have to be nimble to keep on top of things. His hope is that the new recruits will stand the company in good stead.

“The traditional asset management way of looking at things has to go out the door,” he says. “It isn’t just about zone-As and pounds per square foot. What about virtual reality and driverless cars? It’s about opening your mind to all the different possibilities out there and filtering the relevant from the irrelevant.

The traditional asset management way of looking at things has to go out the door. It isn’t just about zone-As

“Our goal isn’t necessarily to predict exactly what tech we’re going to need or how tech is going to evolve - my crystal ball isn’t that accurate. It’s actually just making sure our buildings are flexible enough to be tech enabled for the future and to adapt as tastes change.”

Many of the lessons Landsec has learned over the past few years are being applied at Westgate, which opens next month.

In addition to shorter lease lengths, Westgate will include a series of restaurants on the roof, which benefit from, Parsons says, “absolutely stunning views of Oxford’s dreaming spires”, and Westgate Social on the ground floor, a more informal meeting place where people can gather to eat street food, much like at Trinity Leeds.

Something for everyone

The 100-unit mall is 80% let six weeks ahead of opening and the hope is it will be 90% let on opening. Given Oxford’s mix of tourists, students, academics and the local working population combined with its poor existing retail stock, that it should be so well let at this stage is unsurprising.

The city was, Parsons says, “woefully undersupplied” with modern retail units and was number one on the priority lists for a whole host of retailers. “Westgate does genuinely offer something for everyone,” he says. “It will give people the catering and retail offering that they’ve been desperately needing for, well, forever. It will really add value to the city.”

Parsons says his job is to make sure Landsec’s retail business is resilient and not only performs but thrives. By churning the portfolio and concentrating on higher-quality assets he appears to have achieved that. The hope now is that Westgate Oxford will be another jewel in its crown.

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