Retail 2020: There’s more change than you think
12 January 2020
It’s easy to view the continued decline in retail as a single - torturous - trend. But, when you look beyond the sloping charts, there’s a hive of change, innovation, micro-investments, and macro revolutions.
From a consultant’s perspective, when the industry was once dominated by old names, steel frames and glass, today there are hundreds of agile operators and boutique enterprises growing their market share. It has never been this varied.
Over the last five years, investment activity in the sector has fallen dramatically, with retail accounting for 20% of all investment deals by volume in 2014, and only 8.2% in the first quarter of 2019. Only £788m was invested in retail property in the first quarter of 2019, the lowest level of investment activity since 2000. Various market surveys suggest that retail sector was the only area to see an outright decline with a net balance -58%. In terms of investments, headline enquiries at the national level fell slightly (-11% in Q4, compared to -15% in Q3), largely driven by a slump in demand for retail properties.
The most active group of investors across the UK remain privately owned companies and local authorities, as institutional and corporate interest in the sector continues to be very muted. Majority of shopping centres in England are owned and developed by the same companies; the bigger companies like Derwent are not involved in any new developments. intu, who are in appx. £5bn debt, are trying to sell some of their properties to lighten the load. British Land has written down the value of its retail investments by 10.7% to £4.8bn, with the losses pushed to £440m in 2019.
When looking ahead, location will be one of the main deciding factors for the success and prosperity of retail. Investors have now moved from cathedral towns in favour of locations nearby new towns with already existing strong, or developing transport links, as they are more financially viable and provide vibrant, exciting, and accessible centres, often in an area of young and growing population.
Towns without a “natural” audience or high footfall will have to increase their efforts to become a shopping destination, smart approach to the new ways of shopping – focused on affordability, sustainability, and flexibility – and offer the clients unique selling points and a sense of purpose, rewriting the rules of shopping and adjusting the experience to the changing needs of customers.
Flexibility will also be vital for the occupiers, with many retailers having to adhere to the new environment, particularly in the light of recent global developments. We have already seen landlords offering alternative rent structures (turnover-based rents and amending regularity of break clauses, with 3 and 4 years not uncommon), which could further into a more separated, deal-by-deal approach, rather than a one size fits all.
By offering greater variation on deal and rent structure, the landlords will be shaping the business model to align with challenges and occupational drivers. We may also observe new start for potential partnerships between owners and occupiers and substantial occupier fallout as a result of COVID-19, however, the fight for survival may permanently change the way we shop – and sooner all stakeholders adapt to the “new normal”, better the chances of sailing the retail sector onto calmer seas.