Seizing the moment
Retail at a tipping point?
I found myself on the BBC evening news programme Points West in January, where I was asked about various retail issues and changes in shopping habits resulting from more people working from home. The very professional presenter and I had gone through the various questions she wanted to ask and as my live slot came to an end and the weatherman was about to do his piece, it became apparent that we had about 20 seconds to fill – cue the unexpected question – “where do you see retail going in the next few years?” Somewhat taken aback I said something along the lines of: Well the problem over the last few years has been that there has been too much retail and too little demand but gradually the tertiary stock is being repurposed and the demand/supply equation is becoming more balanced. As an example, with The Galleries in Bristol being redeveloped and much of Broadmead being repurposed, the shops that are left are of a better quality and gradually attracting better rents. I concluded that this was beneficial not only for landlords but also for shoppers. It was slightly off the cuff but the presenter seemed happy with the positive end to the piece and I was left wondering if my positivity was just an over-optimistic prediction...
How footfall reflects the market
Roll forward a few months and how have my comments been reflected in the actual market? One of the easiest barometers of retail wellness is footfall as measured on a week-by-week basis for each of the three main sectors – the high street, shopping centres, and retail parks. The sector that recovered most quickly was retail parks, with footfall in that sector now approaching 2019 levels. In comparison, high streets are currently lagging at about 5-8 per cent from pre-pandemic levels, while shopping centres are seeing a decline of 7-10 per cent . The reasoning behind that is solid – the pandemic pushed people away from enclosed spaces and also had them keen to explore different and more exciting retailers – especially those found on high streets where piecemeal ownership patterns allow a more varied and eclectic tenant lineup. Shopping centres are often funded by institutions with a desire for good covenants and hence chain-led tenant line ups which worked in the past, but are now suffering from some of the big CVAs and often having to charge for car parking. Retail warehouses offer those bigger brands but in easy-to-access locations with free parking – hence the market has moved away from generic identikit retailer lineups to either more independent or a more pleasant and convenient outdoor shopping model.
It is interesting to note that the best shopping centres are now finding a more varied tenant lineup with different rental models which attract both interesting retailers and hence customers more interested in spending their money, rather than just browsing.
The new St James Centre in Edinburgh is a prime example of this as are the changes being made to the many LandSec schemes Colliers is instructed on which are being transformed into retail locations which attract a variety of shops and leisure operators, and as such more customers.
Prime locations and prime opportunities
I am most familiar with the retail warehouse sector where rents over the last six-eight years have generally reduced or stayed static, except isolated locations where only growth has occurred. This has been set against the recent history of reduced demand and CVAs – during and since the pandemic - and those retailers who are active including the likes of B&M and Home Bargains who often have taken poorer units that need much care and attention and hence they pay lower rents. However, against this backdrop, many schemes have kept the same retailers – often those schemes are the better ones in a town or city – and there have been no vacancies and hence no ability for the landlords to test the market rent. Added to this is the very low average vacancy rates of about five per cent (the industrial vacancy rates are at a similar level) and it is only when a prime property does become vacant that some rents increase. Hence the market seems to be at a point where demand is generally just falling below supply and rental levels have reduced or stagnated. It would appear that if demand does increase, there could be a change in that dynamic – especially for properties with food use.
Colliers has also been involved in the redevelopment of The Broadwalk in Knowle, Bristol, a typical suburban neighbourhood shopping centre that had seen better days. The redevelopment includes a comprehensive mixed-use development plan, encompassing 70,000 sq ft of retail and leisure space, along with community and a significant residential element.
This is another example of poor retail stock being taken out of the available supply and what is left is better and more relevant to the current retail market.
In addition, it also provides much-needed residential stock in a well-connected neighbourhood relatively close to the centre of Bristol. Therefore, whilst I may have been slightly optimistic in my comments, I do feel positive about the retail market and the drop in inflation to well below 10 per cent is a further sign that the increase in living costs should not last.
As a result, for the brave developers, there may be some good opportunities and for the similarly minded retailers, now is the time to acquire new stock in the best locations at levels of rents which will probably increase shortly.
Nick has worked in the property industry for more than 30 years dealing with a wide variety of property types and sectors such as retail parks, cash and carry, restaurants, supermarkets and offices. Nick is a specialist in all aspects of asset management for a variety of clients and concentrates predominately on the retail park market doing rent reviews, lease renewals and re-gears as well as new leases.