Industry Watch: Retail Property Sector - Company Watch
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Industry Watch: Retail Property Sector
The content of this document is: Commercial in Confidence © Company Watch Limited 2020
Company Watch, Centurion House, 37 Jewry Street, London, EC3N 2ER - +44 (0)20 7043 3300 - info@companywatch.net – www.companywatch.net
Industry Watch: Retail Property Sector
Organisations around the world rely on Company Watch’s industry Our latest Industry Watch looks at the Retail Property Sector and how it
leading financial analytics, such as the H-Score® and TextScore®, to is struggling with the many issues it faces today.
drive their credit and procurement risk processes.
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Jo Kettner
With the H-Score® and TextScore® predicting over 92% of global quoted CEO, Company Watch
company insolvencies in advance, it is the risk management tool of December 2019
choice, providing actionable intelligence in an uncertain world.
As part of our ongoing analysis of the market place, we monitor the
performance of industry sectors within the economy and model the
impact of internal and external events on various sectors. These results
are included within our Industry Watch updates.
The content of this document is: Commercial in Confidence © Company Watch Limited 2020
Company Watch, Centurion House, 37 Jewry Street, London, EC3N 2ER - +44 (0)20 7043 3300 - info@companywatch.net – www.companywatch.net
Analysis of the Retail Property Sector
Retail property continues to face a number of serious challenges: the It is a different story for retail parks however, where planning applications
rise in internet shopping, the move away from traditional high street for new parks has doubled over the past five years. The most active
shopping and demands for flexible lower rent means that retail property tenant sectors for this new retail space are:
owners, managers and investors are having to reappraise their business
models. • Food & Beverage 26%
• Health & Beauty 17%
Market Trends • Fashion 16%
The make-up of retail property, covering retail stores, shopping centres Retail property continues to be hit by the number of CVAs of multi-
and service business, is an important sub-sector of the commercial site retailers. There has been a 52% increase in CVA’s over the last year
property industry. The retail property sector has seen a drop in for multi-site retailers, rising from 25% to 38%. Even bigger, multi-site
investment and value, with the value of retail property sales collapsing retailers who have 10 or more shops have been hit, with the number of
last year - down 47% from 2017. CVAs rising from 2% to 13%. Some of the more high profile CVAs for
the past two years include New Look, Mothercare, Carpetright, House
Between 2014-2018 there has been a 42% drop in retail property of Fraser, Select, Debenhams, Arcadia and Monsoon Accessorize.
investment in the UK; most significantly is the 78% drop in shopping
centre investment. There were no new shopping centre openings in
2019, although some extensions were completed. There has also been a
move away from retail to residential with one in three London shopping
centres planning for an element of retail conversion, reflecting the trend
which has seen 14,000 new homes created from retail conversion since
2013.
The content of this document is: Commercial in Confidence © Company Watch Limited 2020
Company Watch, Centurion House, 37 Jewry Street, London, EC3N 2ER - +44 (0)20 7043 3300 - info@companywatch.net – www.companywatch.net
“The value of retail property sales has collapsed in 2018 - down 47% from 2017”.
The content of this document is: Commercial in Confidence © Company Watch Limited 2020
Company Watch, Centurion House, 37 Jewry Street, London, EC3N 2ER - +44 (0)20 7043 3300 - info@companywatch.net – www.companywatch.net
Analysis of the Retail Property Sector
The rise of CVAs and administrations means 19.2 million sq.ft of retail landlords - currently Intu is valued at only 32% of its NAV (Net Asset
space has become empty since the start of 2018. The Thomas Cook Value represents the net value of an entity and is calculated as the total
collapse added in another 568 units and 885 thousand sq.ft. Department value of the entity’s assets minus the total value of its liabilities).
stores are experiencing the most impact, amassing 5.9 million sq.ft of
empty space - a staggering 31% of total UK sq.ft. Funding is also becoming more of an issue. The Loan to Value (LTV)
figures are vital for banking covenants and for investor sentiment for
There are clear geographical impacts as well, with London and the listed landlords. There has been a rise in the LTV figures, and these,
South East retail property sector being hardest hit, totalling 29% of combined with shrinking balance sheets, massive property write offs
unoccupied retail space (5.5 million sq.ft), followed by Scotland at 13% and falling rental income is straining funding relationships.
and the North West with 9%.
Key problems
The key problems for the retail property sector are well publicised: the
number of CVAs, unoccupied retail space, lack of rental income and the
pressure from powerful tenants such as Next and Mike Ashley looking
for shorter terms and cheaper rents. All these come together to create
conditions of chaos and uncertainty.
Lease term flexibility is seeing the average lease term reduced to 7.5
years, from 9 years in 2013; although many believe that is still too high
for the modern, rapidly changing business world. We are now seeing
tenants demanding break clauses and easy ‘out routes’ in case business
begins to slump.
As rental income is forced down, valuations become depressed,
causing retail property landlords severe challenges. There have been
share price discounts to net asset value (NAV) for some quoted retail
The content of this document is: Commercial in Confidence © Company Watch Limited 2020
Company Watch, Centurion House, 37 Jewry Street, London, EC3N 2ER - +44 (0)20 7043 3300 - info@companywatch.net – www.companywatch.net
Analysis of the Retail Property Sector
The future of retail property
There are some clear trends for the sector. In future, space flexibility
will be the key requirement for retail landlords. This will include re-
purposing and re-configuring current space; the ideal let size of a unit is
under 1,000 sq.ft (one in three units of this size are let within a year, far
quicker than bigger spaces).
The sector also needs to respond to increasing expectations from
shoppers wanting an experience, forcing landlords to invest in upgrading
space to attract tenants, or sometimes even just to keep them.
It is unsurprising that most landlords are trimming their portfolios; the
CFO of property giant Land Securities announced that it will exit the
retail park market altogether over time, after it took a £441m write
down on its retail investments.
Summary
The retail property sector continues to face challenges. Consumer
attitudes, buying habits and lifestyle changes have contributed to the
decline in shopping centres.
The sector is being forced to review its business model, its business
approach and its remit, with the current volatility looking set to continue
into the new year.
The content of this document is: Commercial in Confidence © Company Watch Limited 2020
Company Watch, Centurion House, 37 Jewry Street, London, EC3N 2ER - +44 (0)20 7043 3300 - info@companywatch.net – www.companywatch.netThe H-Score®
The H-Score® measures a company’s financial health. It is derived from
a company’s published financial results and quantifies how closely the
accounts resemble those of companies which subsequentlyfailed.
Displayed graphically over five years, on a scale of 0 (weakest) to 100
(strongest).
Companies with an H-Score® of 25 or less are placed in the Warning
Area. Not all companies in the Warning Area will fail, however, of
the companies that do fail, the vast majority were in the Company
WatchWarning Area prior to collapse.
The H-Score analytics look at a company’s financial position from
a number of aspects including profit management, working capital
management,liquidity, and how the assetsare funded.
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The content of this document is: Commercial in Confidence © Company Watch Limited 2020
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