Retail polarisation a key theme for 2013 – Savills
Savills says this Christmas could be stronger for retailers than many have expected, and notes that a number of retailers have been quietly predicting the same thing. But the big challenge for retail landlords over the next few years remains the fact that the majority of retailers simply have too many stores, the firm says. On the positive side, an increasing number of retailers have been telling Savills that they don’t want to go down the CVA route. In the medium term, however, “we will all have to deal with a steady downsizing of store portfolios, through lease expiries and break notices,” it adds.
Despite the trend towards shedding stores, it appears that some strong retail brands that are seeking to expand their store network are actually finding it hard to do so, because of a shortage of available retail units of suitable type and size in the locations where they want to grow. Savills expects the polarisation of the retail market between strong and weak towns to be a major theme for the next five years. Small units in strong towns remain hotly contested but most of the new vacancies will be in the “wrong” locations, the firm says.
Shopping centre investment rose in Q3 2012 to £634m of transactions across 11 centres, with a good depth of demand demonstrated from “a handful of key parties seeking to gain representation in the sector”. But outside the super-prime, prime and town-centre-dominant assets, investor demand remains thin, while Savills describes the high-street investment market as “higgledy-piggledy” with shop values still hard to determine and the institutional market remaining shallow. The firm thinks that private funds have an excellent opportunity to pick up some top-quality assets while caution prevents some funds from acting.
“We are strong believers that most towns will not reach their ‘rental floor’ until we have seen the last tranche of 1989/90 granted 25 year leases fully run their course,” says Savills. The firm, which expects inflation to fall below earnings growth by next year, spurring the start of a consumer recovery, thinks that by 2015 most towns will have seen their key retail streets go through a full occupational cycle. “This should provide investors with a long awaited rental platform from which to see rental growth as the UK emerges out of recession,” it adds.
