Retail investors wait for post-Christmas opportunities – Savills
“Beyond the South East, the retail market can be a very gloomy place”. So says Savills in its latest research into the shopping centre and high-street retail markets in the UK. It highlights that some retail investors are waiting to examine the aftermath of the important Christmas trading period before considering their next steps.
The unseasonably warm weather recently experienced in the UK and the difficulties of some mid-market fashion occupiers faced with changes in consumers’ buying patterns have led to expectations that there could be substantial numbers of business failures after the December quarter date. “The next financial quarter will be one of the most important in recent years for retailers’ continuing success into 2012 and beyond,” Savills declares. Some investors may thus be holding back, in the hope that prices may fall further after Christmas, before deciding where to invest.
Savills notes that premium shopping centre assets are highly sought after, and says there could be a “flurry” of such deals in the final quarter. The firm also expects an increasing number of good-quality high-street retail premises to come to the market in 2012, offering good opportunities for investors, as banks are expected to step in to a number of situations involving good-quality shops held by private investors.
National occupiers with large retail portfolios are increasingly using lease expiries as an opportunity to remain in occupation on turnover-only deals, Savills says – these deals give them a high degree of flexibility on the lease term. The firm says there is a danger that historical rental data will be completely undermined in some secondary shopping centres as this trend takes hold. It adds that occupiers’ unwillingness to take long leases in poorer locations is creating a significant divide between prime and secondary, in places where the division had been blurred earlier this year.
Few shopping centres are expected to come to market during the remainder of this year, as the timescales are now too tight. If all deals currently under offer and in the market complete, Savills says the full-year total transactional volume for shopping centres will be around £5bn. But the firm says this is unlikely, as some of these assets may fail to sell as a result of the decline in investor sentiment and the growing eurozone concerns in recent months. It thinks the total is more likely to be £4bn-£4.5bn, which it says is in line with the annual market average.
The Financial Times reports today that some retail landlords are so keen to avoid paying business rates on empty shops that they have agreed to “business rates only” deals on a number of high-street shops, where the retailers pay just a nominal £1 rent on the condition that they also pay the business rates due on the premises. Dixons and Card Factory are among the retailers agreeing such deals, the paper says, noting that several retailers – including Mothercare, Thorntons, Arcadia and Dixons – are withdrawing from high-street premises when leases expire and preferring to trade from retail parks, shopping centres or online.
