Internet sales are 56% higher than they were in February 2020. Non-food store sales are 27% lower than at the start of the pandemic however, despite this, traditional retailers are continuing to grow their online presence and shrink their bricks and mortar portfolios. Consequently, many towns have too much retail space relative to their consumer base.
This retail market monitor offers a brief update on the UK retail market and presents headline figures on central London, the South East and the rest of the UK.
- Across the whole of the UK’s retail landscape there are very few signs that the problems of the last few years are near being resolved. In some parts of the market take-up improved in Q4, but the long-term direction of travel suggests demand for retail space will continue to fall away.
- The other side to weak demand is increasing levels of supply. The development pipeline has responded. Construction activity is at low levels. The limited amount of construction being undertaken is targeted specifically at the supermarket sector. Aldi and Lidl appear to be aggressively expanding capacity and market share.
- Rental values continue to decrease but a rapid adjustment to the prevailing market conditions is delayed by leasing structures; in particular, upwards only rent review clauses. Business rates represent another obstacle to a regeneration of physical retailing. The cap on rates recently announced is seen as inadequate for large retail businesses seeking to re-structure.
- Deflating rental values and the failure of large scale national multiple retailers will have dissuaded investors from considering investing in the sector. There is some indication that private property companies in particular see some value in retail warehousing trading at yields of 10% or more. Expect to see a more diverse range of investors including Local Authorities and Housing Associations.
- Weak investor sentiment is causing yields to rise. In the last 12 months Shopping Centre capital values have decreased 30% and Retail Park values are down by 16%. Values have even been falling in central London. In Q4 MSCI recorded Mayfair retail values falling at an annualised rate of 26%.