Grocery outlet development surges, despite economic uncertainty – CBRE
The grocery outlet market is the exception to the retail rule at the moment, says CBRE, with the surge in grocery shop development activity showing no signs of slowing despite the uncertain economic environment. Grocery floorspace in the pipeline has grown by a “startling” 57% since September 2007, the firm notes, and now encompasses both high-street retail space and out-of-town stock, and new developments as well as store acquisition schemes.
Some difficulties have been reported at the hypermarket (very large store) end of the market, with some major grocery retailers reporting disappointing growth in non-food sales. However, talk of some development programmes being pared back has not so far filtered through to pipeline figures, CBRE says.
The firm says the scramble for grocery space looks set to continue, as the internet and ‘click-and-connect’ will not fill the gap in the market created by the retreat of non-food chains and service operators from smaller local markets. “The only obvious way of tapping local everyday non-food and service expenditure is via grocery non-food merchandising,” CBRE says, adding that “grocery development is often the only game left in town and could well remain so for a very lengthy period”. Grocers are continuing to push into out-of-town space but are also buying additional high-street retail premises, particularly in areas where it would be difficult to obtain planning permission for superstore development.
CBRE’s recent research into the market for shopping centres shows that the overall development pipeline is finally showing signs of significant contraction, four years after the downturn began. CBRE says pipeline levels have fallen about 10% during the past six months, and construction activity levels suggest annual completions of 2m-3m sq ft of shopping-centre space per year for the foreseeable future. “At this level, development activity is just bumping along the bottom”, it notes. There are only five significant shopping centre schemes currently under construction in the whole of Great Britain, the firm adds.
CBRE expects shopping centre development activity to remain muted until the UK economy improves. It also expects that the recent modest increase in construction activity for retail warehouse parks will not continue, as the economic fundamentals are not in place to sustain an upturn. The development of speculative retail warehouse parks has fallen sharply since the credit crisis began in 2007, with the overall pipeline down 12.5% since then, continuing a downward trend that began in 2005 as bulky goods markets began to weaken, the firm notes.
For investors, CBRE thinks retail parks look increasingly like a one-way bet. Institutions have invested heavily in the best parks in recent years and are now sitting on this stock, unwilling to trade. Debt levels are low and vacancy rates are diving. Meanwhile, the effective ban on out-of-town shopping centre development continues to result in A1 demand spilling over into the retail park market. “The collapse in speculative park development activity is inevitable, re-focusing demand on existing stock,” CBRE says. “A lot of players are chasing very little stock”.
A relaxation of ‘town-centre-first’ planning regulations would lead to a flood of new A1 park building, regardless of underlying economic conditions, as the pent-up demand for retail space available on such parks remains very strong. But there is little sign of planning attitudes softening, says CBRE, so a development upturn is not on the cards.
