Tough times for retailers – JLL
In the last of our series looking at some of JLL’s property predictions for 2011, Charles Miller says times are expected to get tougher for retailers this year given the VAT increase, rising inflation, and the public-sector spending cuts (and associated job losses).
Miller, a partner in the JLL retail agency, notes that retail rents in the UK are not often pegged to RPI, in contrast to the rest of Europe – so inflation will have a limited direct effect on retail rent levels. However, it will have a “very significant” effect on overall occupational costs, with rates and service charges expected to rise.
Miller points out that prime retail property is not necessarily the most profitable for retailers, as it carries higher occupational costs that can outweigh the higher sales achieved by prime sites. He believes, therefore, that as retailers seek to cut their costs, the areas with highest occupier demand could actually turn out to be the areas most affected by rationalisation programmes.
Stratford City is likely to be the last of the current model of shopping centres, Miller says, with the format of a heavily subsidised anchor tenant attracting other retailers now no longer expected to be financially viable in many cases. Given the low level of new shopping-centre development, retailers are forecast to find it more and more difficult to acquire “efficient space”, which could lead to a two-tier market in which a premium has to be paid for the best units, he says.
Miller also highlights the problem of the “ugly tail” of retail properties, which are never likely to be reabsorbed into the market because they are too old, in poor locations or badly configured. He thinks greater flexibility in planning is required, to enable this stock to be allocated more appropriate property use classes. “Just as the leisure and A3 operators (e.g. pubs and restaurants) re-absorbed the ‘ugly tail’ of retail vacancy of the last recession, other uses (e.g. residential) could ideally do the same this time around,” he argues.
