Retail property report reveals industry woes
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Greg Styles, Head of Retail at Colliers CRE based in Leeds |
Greg Styles, Head of Retail based at the Leeds office of property advisors Colliers CRE discusses the finding of its benchmarking Midsummer Retail Report published last week. The UK is currently experiencing the worst retail property market since the early 1990s and the Rents Map published with the report shows that overall retail rents across the UK fell by 3.1 percent in real terms over the last 12 months – the biggest annual decrease for 15 years. Demand on the High Street for premises is limited and major retailers such as JJB Sports, Austin Reed, Thomas Cook and Jessops amongst others are running large scale disposal programmes. With no retailers looking to rapidly expand and a low number of well run businesses just looking to fill gaps in mature portfolios, supply is now outstripping demand in many towns and cities across Yorkshire & The Humber and indeed the UK. Surprisingly, vacancy rates have held up so far, staying static at 9.3% over the last 12 months, although results vary greatly across different parts of the market. Already the footwear and clothing sectors have borne the brunt of the fallout from the credit crunch recording double digit month to month sales falls this year. Greg Styles comments on the catalyst: “People are starting to prioritise paying their mortgages and feeding their families and discretionary spending on items including clothing has been viciously scaled back. This has forced operators to discount heavily to try and stimulate sales, which, has a knock on effect for the property market.” Whilst there is no doubt that the supply of available units is preventing rental growth in many cities, towns and shopping centres across the UK and causing rental falls in others, there are still a number of locations, including Yorkshire & The Humber, that have seen positive growth. Yorkshire & The Humber is one of only three other regions across the UK to experience an ‘in-town’ prime rental increase (2.2 percent) between May 2007 and May 2008, the others being North West (2.8 percent increase) and Scotland (1.8 percent increase). “The rental increase in Yorkshire & The Humber can, in part, be attributed to the strong performance of the region’s market towns” explains Styles. “Lack of good quality vacant retail accommodation and strong retailer demand in the more affluent areas has led to some new benchmarks being set – for instance Beverley experienced a 16.7 percent increase in Zone A headline rents. Other strong performers include Sheffield with an 11.9% increase driven by restricted supply whilst the new development is awaited.” Overall the future is much bleaker, however, as Colliers CRE predicts that retail rents will fall by a further 15-20 percent in ‘real terms’ over the next three years. Colliers CRE also forecasts a double dip in capital values, with the second drop causing a further 10 percent fall over the next 12 months. The falls in investment values have severely affected the shopping centre development pipeline. Last year saw the first slippage this cycle and in 2008 a landslide has begun. Compared to the projections made in 2006, the space now due to be delivered has fallen by 46 percent for 2008 and 78 percent for 2009, a problem that is not unique to Yorkshire & The Humber and exists across the UK. Styles continues: “With higher construction, finance and letting costs; softer yields; no rental growth; and lower levels of retailer demand, it is little wonder that schemes are running into viability problems. This is not the exclusive preserve of the weaker projects and smaller locations, but these factors affect every scheme, from the largest city centre to the extension of the local mall. “Taking account these factors and the number of new retail schemes planned across Yorkshire & The Humber in the coming years, I am in no doubt that some developments will be delayed. This may just be short term, but some could be shelved for some time.” The prospects for the remainder of 2008 and 2009 are undeniably weak for the retail sector and the UK economy as a whole. Whilst a cautious approach should be advocated the report maintains that there are opportunities to buy at the current time. Styles concludes: “For the clever and ambitious, the current hiatus in the shopping centre development market will bring opportunity. Where the fundamentals of the developments remain strong, i.e. well located sites in good towns without an oversupply problem, then the watchword for the bold is go hunting! “We predict the market will return to equilibrium by 2010 with improvement beyond and now is the time to start preparing.” For a full copy of the report visit: www.midsummerretailreport.co.uk. |
