Retail owners and occupiers to tread very carefully – Savills
Looking at retailers’ recent trading results, Savills says “Christmas 2011 leaves a market place for 2012 where sentiment continues to be very fragile”. It feels that occupiers and owners of high-street shops “will need to tread very carefully in terms of strategies and managing their portfolios for the year to come”.
Savills’ latest research into the market for retail properties for sale and to let notes that private investment activity in 2011 in high-street retail units was generally for smaller lot sizes, with a strong focus on well secured, long-dated assets. With debt almost impossible to obtain apart from the case of Central London retail properties, larger lot sizes of between £2m and £5m are more difficult to sell – they are too big for private investors, but too small for funds. “This could be a good area in which to seek bargains”, Savills says. It thinks banks have now adopted a more pragmatic approach to selling assets and feels that more “assisted” sales may take place with consenting borrowers, but adds that it will be almost impossible to find buyers for some retail assets.
Lease expiries will be in focus this year, says Savills. It notes that retailers will be quick to offload stores that are not profitable at expiry, and points out that many 25-year leases from the late 1980s are now coming to an end, enabling retailers to rationalise their portfolios of properties during the next two to three years, as these and other short leases expire. This could have a material impact on rents, it notes. Landlords may seek to protect headline rents, but this is only possible with an extended rent-free period, with two years rent-free on a 10-year lease now the norm in all but the very best retail centres, it adds.
The yields on the best UK shopping centres will harden this year, as capital continues to seek a safe haven, says Savills. The firm expects risk-averse investors, searching for prime, secure income streams, to take further stakes in super-prime and prime centres in 2012, enabling the existing owners of these properties to release equity for further investment while holding on to the valuable asset management mandate.
