Sector Focus Bulletin

Editorial

Watts Sector Focus Bulletin - Retail

The retail sector, which accounts for around 9% of all VAT registered businesses in the UK, is facing a crisis. Continued low demand will inevitably result in further casualties on the high street as we have seen with Clinton Cards, La Senza and Julian Graves during the course of 2012, with many others still in the throes of administration. However, the Centre for Retail Research has indicated that they expect 2013 to see an improvement, with sales increasing, as long as inflation stays low.

In this climate, it is more important than ever for retail owners and occupiers to maintain a sharp focus on their property assets and to understand the cost implications of maintaining high quality space that is also energy efficient and complies with current legislation.

At Watts, we have significant experience in all areas or retail property and as a result have established a retail forum across our network of offices. This forum aims to support our clients wherever they are located by sharing collective knowledge and specialist expertise in the retail property sector.

In this bulletin we focus on some aspects of the current market that we believe are impacting on our clients. We hope you find the content both informative and useful.

 

Keith Low

Associate, Watts Group PLC

Watts Sector Focus Bulletin - Retail

What next for retail?

With new research revealing a decline in the number of high street stores, shopping centre investment falling and retail insolvencies up by 10% during the last quarter of the year, what does the future hold for the UK’s retail property sector?

Retail Focus Aug12_Main

Figures for the second quarter of 2012 did not paint a rosy picture of UK retail. According to research carried out by the British Retail Consortium (BRC) the total number of high street shops fell for the first time in four years. More research, this time from PricewaterhouseCoopers (PwC) analysing corporate insolvency numbers, shows that the retail industry is significantly worse off than this time last year, with insolvencies up by 10.3% on the same quarter last year. Retail property investment is down too according to Knight Frank’s latest Shopping Centre Investment Quarterly Report, which showed a 15% reduction in investment volumes from the first quarter of 2012.

It may be tough on the high street but internet shopping is increasing exponentially and contrary to expectation it may just prove to have a positive rather than negative effect on the retail property market. A recent report by Mark Teale, Head of Retail Research at CBRE, titled Shop expansion and the internet (CBRE, May 2012), points to the internet as the biggest catalyst for change in the retail sector in the last 30 years. No news there but what is surprising is Teale’s observations about the way in which property is likely to be affected by changes in consumers’ purchasing habits.

Rather than identifying a simple equation whereby increasing electronic sales automatically mean reducing the amount of physical retail space required, Teale argues that it is delivery methods rather than purchasing that are having the greatest impact. He explains that whereas “home delivery is growing quite slowly; it is click and collect that is growing unusually rapidly”. This, Teale believes, has important implications for retail property because click and collect growth is a big player in driving space demand.

“What matters from the retail property perspective is not where the transaction is recorded (albeit that is something of obvious concern to landlords where turnover rents are adopted), but whether goods are sourced from shops or not. It is in network planning and the logistics of delivery and collection, not the Internet per se, that the future of retail space is being played out,” he said.

The government-backed ‘Portas Pilot’ scheme aims to drive the regeneration of the high street and bring a new vitality to our traditional shopping areas. It is anticipated that greater diversity and new community-based services will be added to the wider retail market. One of the aspects of retailing that should be considered as part of the mix must be the way in which electronic shopping is integrated into the whole retail experience, rather than simply leaving it as a lone pursuit to be undertaken by consumers on their home computers.

For more information, contact Robert Burke, Director at Watts Group PLC, on 020 7280 8138.

What do you think the future holds for the retail property sector? We want to hear your thoughts! Join the discussion on Watts’ Twitter page @Watts_Group or become a member of the Watts Bulletin group on LinkedIn.

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