Gap widens between retail winners and losers – Jones Lang LaSalle’s North West Breakfast
Jones Lang LaSalle yesterday held its North West Breakfast seminar in Manchester where it issued predictions about the outlook for the UK economy, and the implications of its forecasts for the market for retail property in Manchester and the North West region.
Andrew Burrell, head of forecasting at JLL, said retail trends regionally are slightly weaker than the UK average, with sales growth in the North West lagging behind national rates. He does not expect the growth gap to close this year, given the weak fundamentals for high streets across the UK. He did note some tentative signs of returning consumer confidence, but expects progress to be slow over the next year or so. Beyond that, he expects the outlook slowly to improve and normal growth rates to resume after 2013.
Ben Parker, from JLL’s Northern Retail Agency team, said the firm’s research had shown that up to 50% of existing leases on high street retail premises are due to expire by 2015 as the 25-year leases signed in the 1980s and the 10-year leases of the 1990s are coming to an end. “We have not yet seen the true effect of the shift in demand on our retail landscape, but the next 24 months are likely to see a swift and dramatic ‘playing out’ of these structural changes,” he added.
Mr. Parker says the upcoming spike in lease expiries will enable retailers to rationalise their portfolios, effectively walking away from leases via natural wastage. He expects the gap between “winners” and “losers” to widen, and says this will increase the polarisation between prime retail property and secondary retail locations.
Also speaking at the event was Edward Blood, capital markets director in JLL’s Manchester office, who gave an overview of the out-of-town and supermarkets sector. He noted there were only a limited number of retail warehouse deals in Q1 2012, with UK volumes totalling around £150m compared with the £500m transacted in the same quarter of 2011. “Certain properties are over valued with elements of over renting together with covenant risk and capital expenditure requirements, which is impacting on valuations and the level of deals,” he noted.
Mr. Blood feels that there is potential for further retail failures and thinks future rental growth is likely to be patchy. In the investment market, he says pricing on secondary retail parks with poor occupational demand continues to drift, while opportunities to buy prime assets will be limited. “We anticipate those properties with deliverable asset management will remain the ‘Holy Grail’ for investors,” he added.
