FIT TEST SURVIVAL - Colliers International
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SURVIVAL
OF THE
FITTEST Midsummer Retail Report 2017
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
“
It is not the strongest of the
species that survives, nor the
most intelligent, but the one
most responsive to change
Charles Darwin
EXECUTIVE
SUMMARY
”
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
EXECUTIVE SUMMARY
2017 Midsummer
Report Key Points
“
Upward spikes in
‘persistent vacancy’
UK Retail Property Performance
■ UK prime retail rents are up 1.8% year-on-year – the best
increase since 2008 while prime shop vacancy is down 0.2%
– the first nationwide downward movement since 2014.
■ The proportion of ‘persistent vacancy’ – shops that have been
vacant for more than a year – has risen from 6.1% to 6.6% while
the proportion which has yet to find a tenant after more than two
years has risen from 3.0% to 3.6%.
illustrate a deepening ■ In terms of rental performance, Scotland was the most notable ■ These upward spikes in ‘persistent vacancy’ are the first for two
and strongest region in the year to the end of April 2017 with years and illustrate a deepening polarisation in the market.
polarisation in an average increase of 4.5% while Central London turned in 3%
the market growth. This was healthy but nothing like the Capital’s double-digit ■ The demonstrable cooling of demand in the F&B sector is clearly
”
performance of recent years. concerning especially as it has been such a driver of occupier demand
in the past 2-4 years. However, with some of the ‘vanguard concepts’
■ The proportion of the 420+ locations monitored for the report now taking a standback on further expansion, this is presenting
which saw rents fall in the research period more than doubled other operators to increase their market coverage – and on more
from 5% to 12%. This has abruptly reversed an improving trend advantageous terms than previously prevailed.
which, prior to the latest figures, dated back to 2012 when 35%
of locations had experienced rental drops during the previous year. The Investment Market
■ The investment market – despite a chronic undersupply of stock
■ The sector is also facing substantial challenges in the form of – still has many active buyers but there are question marks next
‘persistent vacancy’ and lower occupier demand – the latter being to the medium-term availability of debt and the ongoing ability
exacerbated by reduced consumer spending and increased property to refinance existing debt positions.
occupation costs.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
EXECUTIVE SUMMARY
“
The foodstore sector
is set to be one of the
■
■
Where shopping centre owners and their valuers have been honest
with themselves, values have undoubtedly fallen, but there are no signs
– yet – of the financial distress that precipitates sales.
The logistics facilities that serve online shopping fulfilment
London
■ The London market has cooled. We predict that average prime
■
rents across the capital will be flat during the next 12 months.
The market is adapting to the increased occupational costs driven
best performers in are emerging as a new breed of retail assets. by higher rates bills and also has to absorb the space flowing
into the market from more than 2m sq ft of new shopping
respect of investment ■ Logistics have been the strongest performer across the property developments.
volumes sector (8.2% return in the past 12 months) and now change
”
hands at lower yields than all but the best trophy retail assets. ■ Shopping pitches across the capital are being reshaped by the
new market conditions.
■ With traditional food retailers starting to improve their trading
performance, the foodstore sector is set to be one of the best ■ Nowhere in the capital is immune to the new market forces as
performers in respect of investment volumes as investors seek illustrated by Bond Street where an estimated 30+ leases are
income preservation rather than income growth. being quietly marketed.
■ Prime High Street investments have been selling at yields of 3.5-4% ■ Tottenham Court Road is emerging as a new dynamic shopping
– defying the gloom about the subsector as a whole. However, pitch – driven by new development a host of new office HQs
investors need to ‘stick to the best pitches in the best towns coming to the immediate area.
where trading conditions continue to remain healthy’.
■ Prime rents on Tottenham Court Road rose by 7.5% in the year
■ An increased supply of stock from forced sales in the secondary to the end of April – more than double the Central London average.
markets may not be that far away. This is not great news for those
who are sitting on assets where the debt-value is equation is heading
in the wrong direction, but a tasty prospect for predators who are
sitting on a mountain of cash.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
EXECUTIVE SUMMARY
“
‘Driverless cars’ will
transform how retail
Why open a shop today?
■ The key to entering into the shop leasing process with
■
confidence lies with an analysis of profitability.
Retailer Profitability Modelling gives insights to both landlords
■ Online retailing continues to impact the physical shopping world
but it needs to be remembered that more than 80% of all retail
spend still happens in a High Street shop, shopping centre, retail
park or other ‘real life’ shopping environment.
and leisure works and retailers as to which brands will work best in a shop. ■ Deals are taking an unnecessarily long time to do and this is often
due to an inadequately resourced decision-making process.
– especially in ■ The profitability picture will only be complete when there Everyone involved in the retail property sector needs to commit
town centres is a firmer grasp of what part physical stores play in driving to resourcing – and ‘resist the temptation to endlessly tinker with
”
online sales. deal terms’.
■ The next step up from retailer profitability analysis is combining ■ We expect the upward trend in the volume of ‘persistently vacant’
it with behavioural research across shopping environments. shops to continue, with the only remedies being change of use
or demolition.
■ Colliers is trialling a system that installs sensors across a shopping
area which respond to mobile phones in the vicinity, and provide ■ During the next decade, the advent of ‘driverless cars’ will
a deeper understanding of shopper behaviour by delivering key transform how retail and leisure works – especially in town centres.
metrics such as footfall, visit frequency and dwell time.
■ With Tesla, Google and Uber racing to capture this burgeoning
Outlook market, the first UK trials of driverless cars are scheduled f
■ Given that rents have re-based across the UK and retailers have or 2019.
now entered a new phase of store consolidation, nothing is going
to ‘bring back to life’ shops that have been empty for two ■ This evolutionary leap forward in transport can be an opportunity
or more years. to transform our environment and breathe life back into town centres.
■ We are now seeing ‘a real sense of purpose in the integration
between online and physical retailing’.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
Introduction
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
INTRODUCTION
Adapting to change
The Midsummer Retail Report always seeks to ‘take the temperature of the UK retail property
sector and look beyond simple statistics.
Indeed, the headline figures from the UK retail property sector are, We appear to be going through another stepchange in the sector and
on the face of it, positive with prime rents up 1.8% year-on-year that has ramifications for all of us involved in developing, leasing and
– the best increase since 2008 – while overall prime vacancy has investing in retail property. There is no ‘silver bullet’ in this situation
decreased by 0.2% – the first nationwide downward movement but an ever-more precise approach is clearly the order of the day.
since 2014.
The investment market – despite a chronic undersupply of stock
But clearly there are other figures which cause more concern – still has many active buyers but there are question marks next
that lie behind these statistics. to the medium-term availability of debt and the ongoing ability
to refinance existing debt positions. It’s a great time to be
The level and persistency of long-term vacancy can only lead you a cash buyer.
to conclude that are a growing volume of shops that will never
Mark Phillipson come back into retail use. The cooling of demand in the F&B sector is clearly concerning
especially as it has been such a driver of occupier demand in the
Head of UK Retail Given that rents have re-based across the UK and retailers have now past 2-4 years. Eating and drinking out in all its forms – even for
entered a new phase of store consolidation, nothing is going to bring Millennials – is the kind of discretionary spending that may be
back to life shops that have been empty for two or more years. vulnerable to a cocktail of inflation and eroded wage growth.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
INTRODUCTION
“
We are now seeing a
real sense of purpose
But the retail property sector is, as I hope this reports demonstrates,
evolving not dying.
We are now seeing a real sense of purpose in the integration of
online and physical retailing and we should all remember when we’re
In his book, The Road Ahead, Bill Gates says: “We always overestimate
the change that will occur in the next two years and underestimate
the change that will occur in the next 10”.
In the face of this, he advises: “Don’t let yourself be lulled into inaction”
in the integration of in our ‘glass-half-empty’ moments, that more than 80% of all retail
spend still happens in a High Street shop, shopping centre, retail park This is good advice for all of us in the retail property sector.
online and physical or other ‘real life’ shopping environments.
retailing I hope you find our latest report useful and thought-provoking.
”
We have to engage with all the factors influencing our sector
and that will take judgment and decisiveness. All of us in the Colliers UK Retail team would be pleased to discuss
any of the points which it raises.
Our theme in this report is the impact of change and how survival
– whether it be in nature or business – requires the ability to adapt.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
The Evolution
of Retail
PRESS PLAY TO WATCH THE FILM
Mark Charlton and Mark Phillipson look at the
Evolution of Retail during the past 30 years and
suggest why ‘driverless cars’ may drive town
centre transformation.
DOWNLOAD TRANSCRIPT
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >
The Market:
Vital Signs
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >THE MARKET: VITAL SIGNS
Rent and vacancy improvement
but market polarises
Dan Simms reports on the progress of rents, vacancy levels and leasing across the UK retail
property, and also looks at some of the factors influencing the market as a whole.
The ‘vital signs’ of any property sector are varied but in the first
instance you tend to look at rents, voids and leasing patterns to NATIONAL APR 2016 APR 2017
gauge the health of a market. Vacancy rate
9.7% 9.5%
(floorspace)
Colliers carries out bespoke research analysis into these key metrics
of the UK retail property sector and I’m going to review those findings
and also look at what the prognosis is going forward. These overall figures would, of course, have been better if it had
not been for the BHS and other retailer failures such as Austin
After 2-3 years of relative stability in the occupier market, it was Reed and Jones, which have returned a significant amount of
hoped that we can look to move forward with some purpose but space to the market.
clearly – as last year demonstrated – further challenges lie ahead.
Dan Simms The ‘BHS effect’ is most marked in the analysis of prime space
Vacancy Levels vacancy which shows that it has moved up from 4.1% to 5.4%.
Head of Retail Agency – South There is some positive news from the vacancy profile across the
UK but that is tempered by the long-term level of persistent vacancy.
We monitor voids across a sample of key UK locations and in the year
to the end of April, the overall void rate of this sample moved down
from 9.7% to 9.5% – encouragingly, this is the first annual reduction
since 2014.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >THE MARKET: VITAL SIGNS
“
A core of stubbornly
vacant space remains
PRIME
Vacancy rate
(floorspace)
APR 2016
4.1%
APR 2017
5.4%
Rents
Turning to rents, Colliers monitors average prime Zone As in 420+
UK locations.
Our latest analysis shows that 18% of the locations recorded rental
and is growing increases, 70% remained stable while 12% declined in the year
”
So somewhat counter-intuitively, in the year to the end of April, to May 2017.
secondary retail space recorded a better vacancy performance
by trending down from 14.1% to 12.8% Across the country as a whole, average prime rents are up 1.8%,
and this falls to 1.1% if you exclude London. This was the best per-
formance outside London since 2008.
SECONDARY APR 2016 APR 2017
Scotland was the most notable and strongest region this year with
Vacancy rate
14.1% 12.8% an average increase of 4.5% while Central London has turned in 3%
(floorspace)
growth which is still healthy for the Capital but nothing like the
double-digit performance of recent years.
However, the caveat sitting behind these stats is that a core of
stubbornly vacant space remains and is growing as an increasing Given that the Retail Price Index increased by around 3% in the
amount of shopping space becomes effectively redundant. same period, UK rental growth is however technically negative.
The proportion of retail units in our sample that have been vacant I would suggest there is one key takeaway from the latest figures
for more than a year has risen from 6.1% to 6.6% while the proportion which needs to be focused on.
which has yet to find a tenant after more than two years has risen
from 3.0% to 3.6%. While it was good to see an increase in the proportion of locations
where rents increased, the number of locations that saw rents fall
We expect this trend to continue, and for this particular limb of the more than doubled from 5% to 12%.
retail property body in many cases the only answer would seem
to be amputation through change of use or demolition.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >THE MARKET: VITAL SIGNS
“
A lot of retail space
is failing to adapt and
This has abruptly reversed an improving trend which, prior to the
latest figures, dated back to 2012 when 35% of locations had
experienced rental drops in the previous year.
The latest jump to 12% echoes the accelerating amount of the
To put all that in context of our theme today: there are a number
of regions and locations with a positive occupier story and a record
of recent rental growth but a lot of retail space is failing to adapt
and it will surely die. And it needs to be remembered that this sample
is only looking at prime rents so the picture across the wider retail
it will surely die stubbornly vacant property and suggests we are seeing another spectrum will be even more pronounced.
”
stepchange in the market.
Lease Patterns
You can attribute this to the extraordinary events of last year, the rise We also analyse the structure of leases that are being agreed for
of online shopping, numerous cost pressures on occupiers, an uncertain retail space and look at lease lengths, the propensity of break options
political and economic environment or a mix of all of these, but the and also the incentives being granted to occupiers.
over-arching point is that – whether it’s in the domain of vacancy
or rents – we are seeing a polarisation in the market. For the past four years, the average length of new leases has plateaued
at almost exactly 10 years and the propensity for occupiers to secure
This polarisation is illustrated by how rents have progressed since break options is also similarly constant and they feature in around
the financial crash and how uneven the recovery has been. Since the 55% of all new leases. The model of a 10-year lease with a 5th year
previous market peak in2008, Central London rents are up 64% and break is very well established however over the last 12 months we
Outer London rents up 11%. In all other UK regions rents are, have started to see more retailers, particularly in lease renewal
on average, 23% below their pre-crash high. negotiations, hold out for 5 year leases with 3rd year breaks. It is
perhaps ironic that in the year when Brexit process started, our
leasing model has never looked more European.
However, there has been some movement in incentives. We’ve seen
a small increase in average London lease incentives for the 2nd
consecutive year, from 4.2 months to 5.2 months. In contrast,
incentives in both the South and North have once again reduced
slightly – this was the fifth consecutive year of steady reductions
for the north.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >THE MARKET: VITAL SIGNS
“
There are opportunities
for the new leaders of
BHS and Beyond
As it is now 15 months since over 160 large BHS stores were dropped
into the market to seek new occupiers, it is probably a good time to
reflect on what has happened to all this space. Predictably the take
up of this space has been as hugely varied as the quality of the
reflect what has happened in the market, particularly where large
rent reductions have not been matched by large enough reductions
in the new rating assessments.
This is of course exacerbated by extreme downward phasing limitations
the occupational market portfolio – encouragingly, inside the M25, 11 of the 13 stores have
either been let or deals are close to resolution. Elsewhere in the UK
and how this ‘locks in’ the wrong levels for years – we are working
on many properties where the phasing limits will ensure that the
to take on space market the success rate is far poorer and we estimate just over 1/3 correct assessment won’t be reached for 8/9 years, so in effect
”
of the portfolio overall has found a new use so far. will never be paid at the right level.
However, the positive we take from this process is that it has provided This situation has been greatly impacted of the lack of resource within
opportunities for the new leaders of the occupational market to take the Valuation Office Agency leading to little co-ordination across
on space – occupiers such as Inditex, Primark, Next, Aldi, Lidl, Sports the country.
Direct, TK Maxx, Poundworld, Morleys, Wilko, The Range, Decathlon
and the new Days department store format for example have all The High Street and shopping centre markets desperately need
acquired new stores. This roll call is a list of some of the most a boost to continue to fill their vacant units and, with the allocation
successful and dynamic occupiers in our market and we should of discretionary relief being so infrequent, phasing so limited and
celebrate their continued investment in physical store space. liabilities being excessive with little chance of a successful appeal
in the near future, the rating system is not going to help in any way.
Rating Inconsistency
Against this backdrop, we are also seeing the sector come to terms
with the Rating revaluation.
There are huge inconsistencies in the Rating valuations around the
country with some areas being true to values within the market and
some showing huge discrepancies. Many assessments simply do not
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >THE MARKET: VITAL SIGNS
“
We need to be working
in a streamlined way
‘People Problems’
The ‘lack of bodies’ at the beleaguered Valuation Office is a scenario
repeated in other areas of our sector and is contributing to the
grindingly slow pace of deals that we are all experiencing.
We believe this ‘human resources’ problem is a real challenge
to our sector.
Now, more than ever, we need to be working in a streamlined way
to ensure that property connects efficiently with occupiers.
to ensure that property Many UK property owners, most notably Funds that have merged
or taken on new asset mandates and simultaneously rationalised So what can we all do to help this situation? A commitment from all
connects efficiently staff numbers, are operating with overstretched asset management of us to resource teams and decision making processes adequately,
with occupiers team. Lawyers who are confronted with continued fee cutting are to resist the temptation to endlessly tinker with deal terms and to
”
putting more junior staff onto transactional work and this is conspiring avoid reappraising and approving transactions multiple times would
to slow the deal process – even where all parties are in agreement. certainly help our part of the market to have a positive impact on
the ‘Vital Signs’ of the UK’s retail property sector.
When you mix this with the marked reluctance of many owners and
occupiers to take decisions on deals and then stick consistently to
them, you have the perfect recipe for the agonisingly slow resolu-
tion of deals we see so commonly at the moment.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >A New Breed
of Investments?
PRESS PLAY TO WATCH THE FILM
James Watson reviews the Investment market and
talks about an asset type which is fast becoming
a proxy for traditional retail property.
DOWNLOAD TRANSCRIPT
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >Mapping the
DNA of Retail
Success
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >MAPPING THE DNA OF RETAIL SUCCESS
Why open
a shop today?
In today’s turbulent world of rising business rates, internet competition, increasing wage bills and
reduced consumer confidence, Matthew Thompson looks at how landlords and retailers can use
profitability modelling to shape strategy.
Around 15% of UK retailing make now take place online but, if my Let’s say we’re letting a standard shop that could appeal to a variety
maths are correct, that still leaves around 85% which is transacted of retailers.
in High Streets, shopping centres and retail parks throughout
the country. We get interest from a clothing brand, a footwear chain and
a cosmetics concept. Each is established and seems credible;
The key to entering into the shop leasing process with confidence their covenant strengths are not significantly different.
lies with an analysis of profitability. For both occupiers and landlords,
a thorough understanding of profitability is the key. The days of gut However, the missing piece of the jigsaw is how they are likely
instinct are dead. to trade in that specific unit.
Matthew Thompson We have a leading Retailer Profitability Model (RPM), which is used The following is a very de-personalised example of how we use
Head of Retail Strategy by major landlord and retail clients and provides insights into the the RPM to evaluate exactly these types of scenarios for clients.
operational and property costs which retailers face.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >MAPPING THE DNA OF RETAIL SUCCESS
This – very simplified – example profiles three different occupiers
for the same shop. Through splitting out all key ‘moving parts’, we can RETAILER TYPE CLOTHING FOOTWEAR COSMETICS
understand the impact that cost changes can have on store viability,
across different retail sectors. The tool is used to evaluate prospective SALES
tenants – establishing a realistic sales level for an occupier,
benchmarked against similar retailers. Sales (Ex VAT) £960,000 £900,000 £1,200,000
This type of analysis immediately provides various perspectives. Gross Profit £720,000 £585,000 £960,000
For instance – should the property costs of the shop increase by
15%, the profitability of our clothing operator would fall below 10% PROPERTY COSTS
of annual sales.
Rent £275,000 £275,000 £275,000
To successfully absorb the change in occupational costs and to
maintain a profit equal to 15% of annual sales, our clothing operator Rates, Service Charge, Insurance £100,000 £100,000 £100,000
must drive a further £80,000 of sales through the till each year –
equivalent to over £6,500 per month or an 8% improvement in its OPERATIONAL COSTS
sales density.
Staff Salaries £160,000 £175,000 £215,000
Or, what if the cosmetics brand must achieve a net profit of over
£350,000, in order for it to be a viable store for their business and Utilities and Other Costs £45,000 £42,000 £50,000
to continue trading on the street?
SITE CONTRIBUTION
This would mean the brand would need to cut £40,000 out of its
cost-base. This is equivalent to a rent reduction of 15%, improving Net Profit (£) £140,000 -£7,000 £320,000
gross margin by 4% or removing two low paid members of staff
out of its wage bill. Net Profit (%) 15% -1% 27%
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >MAPPING THE DNA OF RETAIL SUCCESS
“
A deep understanding
of both occupancy and
Our profile of the footwear operator also demonstrates that its
business model places it at a disadvantage to other occupier types.
Trading from the lowest margin, the brand would have to trade well
above the footwear average sales density for the area to turn a profit.
And there is a demonstrable ‘halo effect’ for retailers when they
open stores in locations where their online sales are already strong.
Instead of simply detracting from the spend that would normally
be done online, the presence of the physical store tends increase
the total spend in that location across online and in-store.
operational costs allows Based on their business model – our assumed sales density would
need to be over 50% higher to generate the same net profit as the So what you’re not seeing in the figures above is how much a physical
estates to stress test cosmetics brand, from the same store. store contributes to online sales and for many retailers that will be
their holdings in a the crucial bridge between profit and loss in-store.
This example is looking at the letting of just a single store in isolation.
unique way However, this type of modelling becomes very powerful when applied For brands, our Retailer Profitability Model complements any
”
to an estate or adjoining units. location-based network strategy – providing a platform to review
prospective sites in terms of their profitability potential.
A deep understanding of both occupancy and operational costs allows
estates to stress test their holdings in a unique way and see how The next step up from this analysis is combining it with behavioural
a desired tenant mix is likely to impact the financial resilience research across shopping environments.
of a group of properties.
There is a huge amount of data work taking place in this area
Of course, the glaring omission in the simple example is the and innovations are arriving on an almost monthly basis.
relationship between a brand’s online and physical trading environments.
Ascribing a purchase to a particular channel is no longer relevant One consultancy has created a system which films the shoes
– offline and online retail have a symbiotic relationship. of people in a shopping environment, analyses the price point/
quality of their footwear and makes demographic assessments
based on that.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >MAPPING THE DNA OF RETAIL SUCCESS
“
We are collaborating on
a system which installs
Not sure that’s where you’d make a start in this area of footfall
analysis but there are some very interesting systems available.
We are collaborating on a system which installs sensors across
a shopping area that respond to mobile phones in the vicinity.
sensors across a This tracking means you can more accurately measure footfall,
dwell time, and shopper routes.
shopping area that
respond to mobile And as data from different areas of retailing is gathered in greater
quantities and correlated with shopper behaviour and integrated
phones in the vicinity with a brand’s online presence then it should be increasingly
”
possible to map the DNA of retail success.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >The Adaptable
Capital
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >CENTRAL LONDON
The Adaptable
Capital
In the past, we have described London retail property as ‘a market apart’ because of its special
characteristics and drivers.
But that doesn’t mean it is immune to macro-economic factors and However, this shot in the arm has been counterbalanced by the
the sort of geopolitical turbulence that we’ve seen in the past year. unveiling of the new business rates liabilities which, pro rata, have
hit London harder than the rest of the country. So where does this
In short, the London market has cooled. leave London’s retail property market?
The annual double digit increases in prime rents have given way Well, the London market is complex and multi-layered so, as our theme
to an average rise of 3% in the year to the end of April. today is about how to adapt to new conditions, I thought it would be
useful today to look at how two shopping pitches –Tottenham Court
Paradoxically, London retailing was a major beneficiary of the Road and Bond Street – are adapting to the new trading environment.
economic turbulence that followed the EU Vote. The drop in the
value of the pound brought an influx of foreign shoppers looking
Paul Souber to take advantage of items that were, in effect, 20% cheaper than
they had been on the day of the referendum.
Head of Central London
Retail Agency
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >CENTRAL LONDON
This chart shows the two locations and how their prime rents have
progressed since 2000 with the black line showing average Central London Rental Values
London primes. Each location tells a different but relevant story Zone A Rent: Index vs. 2000
about London’s ability to adapt.
Tottenham Court Road
Not that long ago, Tottenham Court Road was the preserve of 600
electrical shops whose presence was punctuated by the Heal’s
furniture store, the YMCA and the Dominion Theatre. 500
That has all now changed as a new generation of retail is spreading 400
north up Tottenham Court Road from its junction with Oxford Street.
Index vs. 2000
300
The thoroughfare has an annual footfall of more than 18m, a large
catchment of workers and a youthful academic population of over 200
160,000 students which contributes to the area having the highest
percentage of people aged between 15 and 34 in the UK. Most 100
importantly, it offers the seven-day trading environment which
retailers now look for.
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Central London Tottenham Court Road Bond Street
Source: Colliers International
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >CENTRAL LONDON
Interestingly, as you can see from this graph, since 2000, rents on
Tottenham Court Road grew faster than the Central London average Tottenham Court Road
for most of the period. They dipped below the average in 2015 but Zone A Rent: Index vs. 2000
are now closing the gap.
This is largely due to the transformation of the shopping offer by new
development. Derwent London’s Tottenham Court Walk established 250
a fresh tone and is now fully let. The Exemplar/Ashby Capital 70,000
sq ft office development on the street will also provide five new prime
retail units. 200
The change in the office population in this area has been a major
Index vs. 2000
150
factor in the desire to create high quality retail. Facebook, Estee
Lauder, Deliveroo, Freud Communications and NBC Universal have
100
all chosen the immediate area around Tottenham Court Road for new
office HQs. As a consequence, the shopping – and eating and drinking
– scene is responding to the preferences of these new neighbours. 50
Prime rents are proving progressive and have risen by about 7.5%
0
– more than double the Central London average – in the past year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
to a present high of £250 Zone A.
Central London Tottenham Court Road
Almacantar’s development of CentrePoint into luxury residential plus
retail and leisure, the revamped Tottenham Court Road Crossrail
station and with major public realm improvements on the way,
the street is a good example of how the development of London’s
business districts will continue to drive the need for retail.
Source: Colliers International
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >CENTRAL LONDON
Bond Street
Bond Street is undoubtedly the most cited bellwether of the London Bond Street
retail property market – although it is more an exception than a rule. Zone A Rent: Index vs. 2000
Since the year 2000, prime retail rents across Central London have
more than doubled but along Bond Street they have increased
by more than 400%. 600
However, it’s time to dispel some myths about one of the world’s 500
most prime shopping pitches.
400
What Bond Street isn’t:
Index vs. 2000
It’s not an impregnable environment which isn’t subject to the factors 300
which shape property fundamentals generally.
200
If it were immune to the economic factors that are currently in play
then there would not be around 30 leases quietly being marketed 100
along the street.
0
It is not a place where brands will simply write-off the cost of being 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
there because it is just part of a bigger global marketing strategy:
the price of using the Bond Street label.
Central London Bond Street
If that ever was the case then it is not how it is today.
Ralph Lauren’s flagship store on New York’s Fifth Avenue was also
thought to be just a very expensive marketing exercise. Well, it closed
earlier this year and that street is also facing further brand departures.
Source: Colliers International
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >CENTRAL LONDON
“
We predict average
prime rents across
What Bond Street is:
What Bond Street is a hugely strong luxury pitch for which there
will always be demand.
There are leasing deals going on in the street right now but there
The Adaptable Capital
Because of its scale and mass, the London retail property market
has never been a simple case of boom or bust.
Different locations in the capital progress at different speeds and
London will be flat will be fewer of the astronomical premiums that we have seen the established pitches must adapt to changing circumstances.
in the past few years.
during the next We predict average prime rents across London will be flat during
12 months It’s easy to forget that ‘Bond Street’ – as we generically like to term the next 12 months.
it – is actually three distinct pitches which have different identities
”
and strengths. There is no question that the market will be tougher than it has been
for a considerable period, and we must appreciate that retailers’
There is the northern end which stretches from Oxford Street down margins are being squeezed on every front.
to Fenwicks. The retailing tone then changes and gets more high-end
from Fenwicks down to Sotheby’s. And finally there is the super luxe London’s shopping scene will have to adjust to the increased
enclave of fashion and jewellery which runs through to the junction occupational costs driven by higher rates bills and absorb the space
with Piccadilly. flowing into the market from more than 2m sq ft of new shopping
developments.
All of these pitches have different characteristics, but all need to be
viewed with the same realism as any other retail environment. The extension of Westfield London will make it the biggest shopping
centre in the UK and is scheduled to complete next year.
Bond Street is certainly not resting on its laurels. Westminster City
Council in collaboration with New West End Company, Transport The fact that London can absorb this scale of development while
for London and West End Partnership is moving ahead with plans fostering new retail pitches is testament to its ability to adapt.
to for a £10m rejuvenation of the street’s public realm to raise the
bar further for this world-class retail environment. This couldn’t
come at a better time.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >Still Hungry
like a Wolf?
PRESS PLAY TO WATCH THE FILM
Eating and drinking in all its forms have been a major
driver of occupier demand across retail environments
in the past few years. But is the sector’s appetite
beginning to wane?
DOWNLOAD TRANSCRIPT
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >The Rating
Jungle
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >THE RATING JUNGLE
‘Impossible’ appeals system
adds to Rating woe
The start of the 2017 Rating Revaluation has had major implications for the Retail sector, particularly
in high value areas and in towns and cities which have seen major decline. However, the impact
on the rest of the country, particularly those which have seen any element of decline in values
from 2008 to date, has not been reflected in Rateable Values as greatly as was hoped.
In a difficult time, when the retail sector in particular has seen the high Of course there are promises of more to follow, but the impact for
street hit by a major recession, ratepayers were hoping for a full ratepayers is very much being felt right now, with large assessments
Rating reform which was promised by the Government in Spring 2015. losing the benefits of transitional relief within 18 months and ratepayers
with properties in areas which have declined not feeling the benefit
However, despite a huge amount of research taking place, which by more than 6% per annum.
included HMRC engaging with key stakeholders ranging from
major landlords through to small businesses, once again the decision Some areas of Central London have seen increases of up to 400%
was made just to tinker around the edges rather than to completely in their assessments with suburban areas still seeing up to 100%
John Webber reform the system. There were issues which as at the valuation increase. There are huge inconsistencies in the Rating valuations
date of 1 April 2015 which are still ongoing relating to resourcing around the country with some areas being true to values within
Head of Rating of the Valuation Office Agency, the growth of the digital sector the market and some showing huge discrepancies.
and vacancy rate of up to 15% on High Streets.
This has to be a direct impact of the lack of resource within the
Valuation Office Agency leading to little co-ordination across
the country.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >THE RATING JUNGLE
“
The new Check,
Challenge, Appeal
For example, areas of the South West have seen decreases in towns
such as Torquay and Weymouth in rental levels of 50% but the Rateable
Values have fallen by under 40%. The opposite of that has happened
in St Ives where rental levels have increased by 23% but Rateable
Values have increased by 60% in prime spots. The assessments
The new Check, Challenge, Appeal system is proving to be very
problematic with personal details needing to be provided to create
a username before navigating through the website to eventually get
to the Check stage, and what might follow is a 30-month appeals
process. This is in addition to the 300,000 appeals which are
system is proving to simply do not reflect what has happened in the market. outstanding from the 2010 Rating List.
be very problematic In the West Midlands, Nuneaton, for example, has seen rental levels We are working hard to influence the Valuation Office Agency to
”
fall by 50% but the VO has only partially reflected this by dropping resolve outstanding issues and clear appeals as soon as possible,
RVs by 20%. This has also been seen in many towns across Wales. explaining the impact on our clients’ liabilities. We remain optimistic
that the Government will understand the medium and long-term
Business Rates has a massive impact on the success or otherwise impact of an impossible appeals system.
of a business and retailers have been struck in this turbulent period
more than other sectors. The revaluation of food stores which, in many The High Street desperately needs a boost to continue to fill their vacant
cases, have changed from being valued on a zoned basis to overall units and, with the allocation of discretionary relief being so infrequent
and have seen massive growth, will be hit with large rates bills and liabilities being excessive with little chance of a successful
affecting their profitability, despite high demand in the sector appeal in the near future, this is not going to help their success.
leading to competitor openings.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >Regional
Market
Updates
SOUTH EAST & OUTER LONDON
SOUTH WEST & WALES
MIDLANDS
NORTH WEST
YORKS/HUMBERSIDE/NORTH EAST
SCOTLAND
NORTHERN IRELAND
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >SOUTH EAST & OUTER LONDON
A period of
consolidation
The last 12 months have very much been a period of consolidation for rents with little growth in rents
across the region. The key areas of activity have been the extensive development pipeline and the
impact of the ex-BHS space on this region.
Development Everywhere are involved with include extensive refurbishments at The Dolphin
The region is seeing a really strong pipeline of new development Centre in Poole, The Square in Camberley and The Brooks in
and centre extensions. Important new centres will open in Oxford Winchester all starting this Summer.
and Bracknell this Autumn and the occupier market is responding
well to both centres. The BHS Effect
The BHS failure in April 2016 delivered over 160 large stores into
Other notable development are now on site including the Arndale an occupier market with a fragile capacity to absorb the space.
Centre extension in Eastbourne having finally restarted after a long A year on, the story nationwide makes for difficult reading with
delay to secure joint venture funding, Hammerson’s Phase 2 of the majority of the stores still empty.
The Orchard Centre in Didcot, intu’s extension at Watford, and the
Dan Simms Tunsgate Quarter in Guildford. Looking to later 2017, Bargate Quarter The picture in the South East is more positive. Of the 13 stores within
Head of Retail Agency – South in Southampton should also join this large and diverse group the M25, 11 have either been let, are under offer or redevelopments
of developments on site. are progressing. Notable examples of the wide range of replacement
tenants across the region include Morleys in Bexleyheath, Decathlon
It is also worth highlighting the significant capital investment that a in Uxbridge, Zara in Brighton, Aldi and The Gym in Walthamstow,
number owners are committing to refurbishments and improvements Primark in Harrow, Sports Direct in Norwich and Watford and
of existing shopping centres – examples that the Colliers retail team The Range at Surrey Quays.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >SOUTH EAST & OUTER LONDON
“
Retailer demand
continues to be robust
Rental Growth
The strong growth seen across the London Suburbs during the period
from 2014-2016 with 5% average increases for three consecutive
years, appears to have petered out with only a 1% average increase
over the last 12 months. This area is notable though in showing
Outlook
The development pipeline will really set the tone for the retail market
in this region over the next 12 months and we expect many of the
most notable deals to be focussed on these schemes and also centres
where redevelopment programmes start to generate new
for the higher quality average rental values at 11% above 2008 – the best long-term occupier demand.
performance of any area outside of Central London – for example,
centres in the London our team has let almost 60,000 sq ft of space at intu Uxbridge over Prime Rents
Suburbs the last 12 months to retailers including Decathlon, Next and ■ Prime rental growth across the region of 0.5%.
”
Toys R Us.
■ The pattern of polarisation is exemplified in the South East. In the
Rental performance in the South East also marked time, with year to end of April 2017, prime rents increased in 10 locations
average rents static and still 16% lower than their peak in 2008. out of 60, and have decreased in four locations.
East Anglia fared marginally better with a 1% increase in rents ■ Bluewater continues to have the highest prime rents in the
but the average remains at 20% below peak. South East, and have remained stable at £410 per sq ft.
■ There has been some softening of prime rents across Oxford
as space in the soon-to-open Westgate shopping centre has
come on-stream.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >SOUTH EAST & OUTER LONDON
“
The region has coped
better with the ‘BHS
Development
■ 2.9m sq ft of additional shopping centre space is set to open
■
over the next five years.
2017 is a significant year for developments in the South East.
Key Takeaways
■ Strong pipeline of new development and centre extensions
■
driving the market.
The region has coped better with the ‘BHS effect’ than
effect’ than the rest The Westquay Watermark leisure development has recently the rest of the UK.
opened in Southampton, and later this year will see the opening
of the UK of Oxford Westgate, The Lexicon in Bracknell, Tunsgate Quarter Rental growth at 1%.
”
■
Guildford and Addlestone ONE.
■ There is a further 394,000 sq ft of net retail warehouse space
due to open over the next two years in locations including
Chichester, Margate and Sittingbourne.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >SOUTH WEST & WALES
A platform
for growth
In the past 12 months, around 40% of the locations which we monitor in the South West recorded
an increase in average prime rents. This is five times more locations to chart rises than in the
previous reporting period. This resulted in an overall positive rental growth for the South West
of 2.5% – the highest outside London and the South East.
Bristol prime rents were up 6% while Exeter is now at its highest The barometer of demand over the last year has been the fate of
level since 2008. Some smaller markets have seen double-digit the former BHS units. In Bristol, the unit in Broadmead is to be
growth – Christchurch prime Zones As are up 19% and they have occupied by Metro Bank and potentially TK Maxx. Poundland has
risen 13% in Falmouth. combined with gym operators to take the former department stores
in Exeter and Taunton. Wilko has taken the Truro unit but the Torquay,
It now appears that after a prolonged period of stabilisation, the region Plymouth and Weston-super-Mare stores are still looking for occupiers.
is now moving forward with re-based rents, sustained occupier
demand and relatively constrained supply. Cheltenham is one of the region’s strongest retail centres with good
Nick Turk affluence levels, a refurbished Regents Arcade, low vacancy rates
Wales is not as positive a story with only four centres showing and a new John Lewis due to open shortly.
Director an increase in rents (Aberystwyth, Caerphilly, Carmarthen and
Haverfordwest). The main highlight of the year was the opening Occupier demand remains highly selective and this is also reflected
Retail Lease Advisory of Friars Walk in Newport where lettings have helped boost the in the retail warehouse sector where planned new schemes are
overall prime rental profile in Wales. competing for occupiers.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >SOUTH WEST & WALES
“
39% of South West
locations recorded
As an example, Truro has strong retail demand and The Hendra
Retail Park looks the most likely to be developed out with Aldi and
Boots as confirmed tenants. Other towns and cities in the South
West have very little vacant accommodation on retail parks but
equally they have been unable to move rents on.
■ The increases have been by locations such as Christchurch
(up 19% to £47.50 per sq ft) and Falmouth (up 13% to £45 per
sq ft), as well as the main retail hubs in Exeter (up 11% to £200
per sq ft, its highest level since 2008) and Bristol (up 6% to £170
per sq ft).
rental increases
Last year we spoke positively about the food & beverage sector The South West exemplifies the polarisation of retail; alongside
– more than double
■
market and how it was driving demand. Since then, the faltering an increase in rents, 11% of locations also saw a decline
the UK average steps of some operators like the Restaurant Group have checked (compared to 0% in 2016).
”
the market for dine-in restaurants although the thirst for coffee
stores seems unquenchable. ■ Wales recorded average prime rental growth of 3.1%, but this
was heavily influenced by new lettings at Friars Walk in Newport
Prime Rents which took prime rental levels up by 150% from £30 per sq ft
■ There has been rental growth across the South West of 2.5% to £75 per sq ft.
– the highest in England (excluding London and the South East).
■ 39% of South West locations recorded rental increases
– more than double the UK average.
EXECUTIVE
SUMMARY
INTRODUCTION
THE EVOLUTION
OF RETAIL
THE MARKET:
VITAL SIGNS
A NEW BREED
OF INVESTMENTS?
MAPPING THE DNA
OF RETAIL SUCCESS
THE ADAPTABLE
CAPITAL
STILL HUNGRY
LIKE A WOLF?
THE RATING
JUNGLE
REGIONAL MARKET
UPDATES
CONTACTS
< >You can also read
