Retail administrations and the legacy stock problem – CBRE
Writing in the latest issue of “In Retail”, CBRE’s head of retail agency Tony Devlin says that while retail administrations might be expected to trigger frantic cherry-picking by retailers previously locked out of prime pitches, this is not happening. Difficult-to-shift legacy holdings are obstructing wider retailer movement in stock.
When good retail stock is released, he notes, it generates demand from new entrants and from existing occupiers who need additional units or who want to trade up in terms of size or location. New market entrants have a clear advantage over existing occupiers when it comes to this newly available retail property, he points out, as they don’t have an existing shop to get rid of in order to move to the new unit, and can make an instant decision. Existing occupiers have to decide whether it is cost-effective or even feasible to move, depending on such factors as the remaining lease term and whether a replacement occupier can be found for the vacated unit.
The number of potential new entrants in large town centres is usually far smaller than the number of existing retailers that want to expand or upgrade their holdings. Meanwhile, the number of expanding retailers is quite small at present, and many of them are already represented in the larger centres, which reduces the demand for stock released in these markets. And the existing occupiers that want to upgrade are often encumbered with retail premises to let of a character or lease conditions that make them difficult to re-let, he adds.
“So, in recessionary times like these, releasing a really great unit in a top trading location does not necessarily mean that there will be a long queue of retailers vying with each other to occupy it,” he points out. “It all depends on the existing occupier mix, and who is represented.”
The administration mechanism favours those who can act quickly, and thus excludes “many retailers that might otherwise, given the time to sort things out, consider acquiring units offered.” As a result, bargain-basement prices can be paid at administration for exceptional units, he notes. And the mix of a high street can be damaged “by the introduction of inappropriate occupiers that would otherwise not get in”, he adds.
A portfolio such as that of HMV, with well located and configured retail space in top trading locations, can be difficult to shift because of the legacy properties that occupiers have to offload before taking on another unit. By contrast, a secondary-located network such as Blockbuster can be fought over as it fits the profile of key convenience and service players such as grocery chains and pound shops.
While highlighting this problem does not necessarily mean that there is a solution, CBRE does point out that while mix damage has been done in some high streets, the steady trickle of retail administrations “has ended the generation-long High Street logjam” and in many others has breathed life, through new entrants, into “previously moribund” pitches.
