28 February 2015

Mailbox Unwrapped

With the Mailbox’s retail element largely closed since July 2013 [Only Harvey Nichols and Armani exchange continue to trade], there is a sense of anticipation about the new look, now only a couple months off, of one of Birmingham’s most recognisable buildings.

First impressions are that even though the 50 million pound refurbishment is still in full swing, the feel of the retail element is bigger and certainly more warmer, thanks to a new glazed roof. An everyman cinema opens this week and shoppers are waited with baited breath to see the ‘New concept’ Harvey Nicholls store. At 45,000 sq ft [double the size of its old store], it will have a top-end restaurant run by Brummie celebrity chef Du Jour Glynn Purnell and a luxury spa.

Brockton Capital [the financial muscle] and Milligan Retail [the development expert], acquired the 11-year-old, 641,000sq ft, mixed used building in 2011, in a 127million pound deal via Brockton’s Capital Fund II. Although Brockton was not the highest bidder, it beat rivals rumored to include Allied London, Nurton Developments, AXA real estate and Tristan Capital Partners. Simon Samuels, partner at Brockton Capital, the principal owner of the mailbox, says the assets were attractive to the London-based fund because of its scale and long-term secure income, while the retailer needed major repositioning.

Although known for its luxury retail offer, bars, restaurants, hotels and flats the mailbox was widely viewed locally as a failing centre owing its low footfall and high void rates, with a clutch of unhappy tenants. It desperately needed to get rid of negative perception and the ‘wind tunnel’ effect by having much needed insulation in the form of a roof. ‘The common misconception with mailbox was that most people saw the retail element emptying out, because that was most people’s front door. But at the time we brought it, retail made up only 15% of the rent roll,’ Says Samuels.

John Milligan, founder of Milligan Retail, says ‘We always knew we would have to close the scheme and change the shape by taking the columns out. It is now less of a corridor.’ Securing the prelet wit Harvey Nichols for an enlarged store allowed the redevelopment to go ahead. Milligan says: ‘I spoke to Joseph Wan who was then chief executive of Harvey Nichols. He felt that the development was never finished properly without a roof. Our challenge was to retain enough retail to cover the cost of the roof and to change the nature of the space.’

Two levels of the retail [totaling 150,00sq ft] remain, with local independent boutique retailers based on the lower level, while the cinema, a champagne bar and an urban room – where a clutch of new, international retailers will debut will be located on the floor above. More than 70% of the retail units have been let or are in final negotiations, including Hugo Boss, Emporio Armani and new leisure wear brand Gas Street Social. Names linked with scheme but which have not been announced; include Calvin Klein, Tommy Hilfiger and Diesel.

Milligan confirms that the scheme will probably open with some units vacant. ‘We don’t want to take second best on brands; we would rather have 25% unlet,’ he says. ‘A soft opening over the spring and summer is the right thing to do. When john Lewis opens [in grand central in September] it will change things a lot’.

But who will take the prime spot at the front of the mailbox when Harvey Nichols moves into the centre? David Pardoe, the schemes retail liaison director says the space, which will not be available until the end of this year, has yet to be let. ‘The store will need to be stripped out and extended when Harvey Nichols relocates,’ he says. As for retail rents, none are being quoted by lettings agents GVA or Nash Bond, but local sentiment suggests the Mailbox may hit a level below top zone A rents elsewhere in the city of 275 gbp per sq ft, because of its location.

Milligan who has retail developments such as Liverpool’s Metquarter under his belt, says the JV partners’ customer research showed Brummie shoppers preferred entry-level luxury brands. He says ‘Birmingham shoppers are more understated than those in Liverpool or Manchester. Customers loved the scheme, liked the location and the canals, but wanted a roof and the right brands.’

Some retail market observers remain unconvinced about the geography. One says, ‘the mailbox has been let down by its location; that hasn’t changed. It is still a location too far. Once John Lewis opens there will be more reason to contain shoppers in the city centre, but it will remain a challenge.’ Samuel responds ‘That was an historic situation. With the improvements to new street station and John Lewis happening one block away, plus arena Central, paradise and the Tram extension you have to reorientation of the city westwards, which takes In the mailbox’ Work should complete on site by the end of May and Samuels is on site every week to oversee.

As for the future Samuels confirms that by virtue of the funds structure Brockton will exit, possibly in 2017. ‘We are nearly through the major part of the repositioning, then there is a period through to stabilization.’ And the end value? Samuels says; ‘I think it is on its way to being worth £250m.’