JOINING THE DOTS Midsummer Retail Report 2018 - Colliers International
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JOINING
THE DOTS
Midsummer Retail
Report 2018
EXECUTIVE
SUMMARY
INTRODUCTION
YOUGOV
RESEARCH
CVAs AND
LEASE REFORM
RETAIL CAPITAL
MARKETS
OUT OF TOWN CENTRAL LONDON BIG DATA
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EXECUTIVE
SUMMARY
EXECUTIVE
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EXECUTIVE SUMMARY
2018 MIDSUMMER KEY POINTS
“THE FINDINGS CONFOUNDED WHAT THE SHOPPERS WANT
A LOT OF THE STEREOTYPICAL ● When a market becomes as dislocated as UK retail property ● The growing proportion of people who do their food shopping
currently is, you have to look beyond the standard property online is “a major headache for the supermarket operators”
ATTITUDES WE HAVE ABOUT metrics to see what is happening. because at present it is not a profit-making area of their business.
SHOPPERS OF DIFFERENT ● This year’s Midsummer Retail Report, Colliers commissioned YouGov ● At present, 26% of over 45s buy groceries online but this jumps
to canvass the views of 3,000 shoppers from across an ’18-80’ to 42% among 35-44 year-olds.
GENERATIONS” generational spread.
● The dominant supermarket operators may also face new
● The findings confounded a lot of the stereotypical attitudes competition. Of the 18-34 year-olds canvassed, 54% said they
we have about shoppers of different generations. found the prospect of sourcing their food shopping through
Amazon Prime attractive.
● For example, whilst young people may be characterised as all
avidly shopping online, the research showed them to be some ● The survey asked shoppers if they would pay more for goods
of the strongest supporters of the town centre shopping experience. that had validated ethical credentials and/or a clear product
provenance. This produced the starkest generational split in
● 78% of 18-24 year-olds named the town centre – as their responses. Among the 18-34 year-old group, 64% said they
favoured shopping environment – well ahead of the 55% would be prepared to pay more for these credentials but that
of over-45s who said likewise. proportion falls to 47% among the over-45s.
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EXECUTIVE SUMMARY
“OUR FORECASTS FOR THIS THE MARKET
Retail Capital Markets
Rents and Vacancy The shopping centre market has had a very mixed year with major
YEAR’S TOTAL RETURNS ON ●
● Average prime rents across a sample of more than 400 UK deals being interspersed with a collapse in value of some assets.
RETAIL PROPERTY ARE MUTED” locations has grown by 0.8% – half the rate of growth recorded
● However, we believe there can be good opportunities for those investors
in our last report.
committed to long-term asset enhancement of shopping centres.
● The underlying rate of fall in rents is most likely to be more ● UK institutions doubled their year-on-year investment into the
acute than this indicates.
supermarket sector. However, only flawless assets are commanding
the prime yields and only the institutions can afford them.
● The pace at which rents are softening will quicken through
to the end of the year while the descent steepens. ●Second tier assets are starting to feel the effects of more general
retail uncertainty, reflected in a slight drift in yields.
● Average prime unit vacancy is a similar story. Across the 15 cities
that we monitor, the average number of prime retail units which ●High Streets may continue to struggle but there are buyers for
are standing empty is 13.3% of stock. well-let, well-located shops at re-based rents. The market is still
alive and interestingly, the yield profile is robustly sharp.
● This is a marginal year-on-year increase, but has not yet been
● Demand for the logistics facilities which serve online retail fulfilment from
impacted by the recent spate of CVAs and retailer administrations.
fashion to food continues to power ahead, but there is some caution
● In affluent areas across the South, many DIY and garden centre about how much headroom there is for occupiers to pay progressive
uses are being forced out by the demand for residential development. rents – especially as the growth in online retailing is now slowing.
● Our forecasts for this year’s total returns on retail property are muted.
● Too many retailers have failed for years to adapt their offer, while
others have been financially structured in a way that has severely ●In 2017, the return for All-Retail property as measured by MSCI
impaired their prospects for survival. was 6.9%. By the end of this year, we expect this to drop to 1.6%.
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EXECUTIVE SUMMARY
“THE APPLICATION OF BIG DATA BIG TROUBLE NEEDS BIG DATA THE IMPACT OF CVAs
STRATEGIES IS ESSENTIAL IN THE ● An increasing number of retailers, landlords and investors are ● Some retailers who are clearly not at risk of imminent failure are
using a profitability analysis approach to determine strategy. now using CVAs opportunistically to free themselves from leases
NEW RETAIL ENVIRONMENT” on underperforming stores.
● This approach should be extended by the application of ‘Big Data’
which shows how consumers are operating in the physical retail world. ● This is not what the CVA tool was intended for and it needs
to be addressed.
● Colliers Retail Strategy team use anonymised, aggregated and
secure transaction data from more than 2bn credit cards, to create ● There are many aspects of the CVA process that need reform
a granular view of spending patterns that provides a credible and this should include:
base to compare locations.
– Only those creditors directly affected by a CVA should have
● Mobile data from the major network operators can also be leveraged a vote. A property-focussed CVA should be voted on only by
to understand crowd behaviour and visitor profile in a location. property owners.
● The Colliers Supermarket Vitality Index leverages over 20 metrics – There should be minimum standards of information provided
to assess the current health and future prospects for more than with a CVA.
6,000 UK supermarkets. – Greater rights for landlords to take stores back after a CVA.
The single six-month window typical to many CVAs is not
● The application of Big Data strategies is essential in the new sufficient and not well balanced compared to the tenants’
retail environment. much longer break option windows and rent reductions.
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EXECUTIVE SUMMARY
“THE SECTOR IS ONLY PART A NEW WAY FORWARD?
WAY THROUGH A PAINFUL AND ● The property industry now needs to contemplate a radical
reshaping of the lease model for much of our retail property.
RADICAL STRUCTURAL CHANGE
● We believe there should be a shift – particularly in some
– HOW WE ALL RESPOND NEEDS shopping centre environments – towards a leasing model
which features:
TO BE EQUALLY RADICAL AND
– Five-year leases granted outside of the Landlord & Tenant Act.
INNOVATIVE”
– Turnover linked rents.
– Mutual breaks linked to turnover thresholds.
– ‘White box’ unit specification.
– Limited incentives.
● The sector is only part way through a painful and radical
structural change – how we all respond needs to be equally
radical and innovative.
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INTRODUCTION
FINDING DIRECTION
The theme for this year’s report is ‘Joining the Dots’ because when a market
becomes as dislocated as ours has in the past few months, you have to look
beyond the usual property metrics to see what is happening.
In terms of the usual headline stats – rents, vacancy and returns VACANCY
– the trends cannot be extrapolated forward in the normal way.
Vacancy is a similar story. Across the 15 cities that we monitor,
AVERAGE PRIME RENTS the average number of prime retail units which are standing empty
is now 13.3% of stock.
When we reported last year, prime rents across a sample of more
than 400 UK locations had grown, on average, by 1.6% – the best This is a marginal year-on-year increase, but has not yet been
performance since 2008. impacted by the spate of CVAs that we have seen.
This year that growth has halved to 0.8%, but the underlying trend WHO’S TO BLAME FOR THE MESS?
MARK PHILLIPSON behind that is far more acute. The pace at which rents are softening
will quicken through to the end of the year while the descent steepens. It’s clear that business rate increases, minimum wage, Brexit uncertainty
Head of UK Retail Group and the general economic environment have helped create a ‘perfect
It is inevitable that by this time next year, annual growth will again storm’ which is wrecking a growing number of retail businesses.
go negative. Indeed, if you remove Central London from the picture,
UK average prime rents have fallen by -0.7% since our last report. However, the blame cannot be laid entirely at the door of external forces.
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Too many retailers have failed for years to adapt their offer, while others TOTAL RETURN FORECASTS 2018 YEAR-END
have been financially structured in a way that has severely impaired
their prospects for survival. The increasingly controversial use by
retailers and F&B operators of Company Voluntary Agreements (CVAs) DEC – 17 DEC – 18
is also a major contributory factor and one which needs to be addressed. Standard Retails All 8.4% 3.6%
Standard Retails ex-Central London 6.4% 1.5%
TOTAL RETURNS
Standard Retails Central London 11.4% 6.3%
Not surprisingly, our forecasts for this year’s total returns on retail Standard Retails Rest of London 7.5% 3.5%
property are very muted.
Standard Retails Rest of South East 7.0% 2.6%
In 2017, the return for All Retail property as measured by MSCI Standard Retails Rest of UK 5.6% 0.2%
was 6.9% by the end of this year, we expect this to drop to just 1.6%. Shopping Centres All 2.9% -3.3%
Retail Warehouses All 7.5% 1.2%
The modest returns envisaged from Standard Shops and Retail
Warehouses, will be cancelled out by Shopping Centre performance. Supermarkets All 8.0% 6.4%
The stand-out sectors are forecast to be Central London and
Supermarkets with total returns of more than 6%. All Retail 6.9% 1.6%
So the headline metrics give us a feel for where the market is headed, All Property 10.2% 5.7%
but nothing like the whole picture.
Source: Colliers/MSCI
To get a better handle on that, we want this year’s report to focus
on various strands of the retail property scene and what can be
learnt from ‘joining up these dots’.
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INTRODUCTION
ASKING THE SHOPPERS WHAT THEY WANT For that reason, we are also proposing a radical new approach to
“IT WOULD, OF COURSE, BE leasing which we believe can better align the interests of occupiers,
FOOLHARDY TO TRY AND PREDICT Shoppers are ultimately what fuels our market, so we decided to ask landlords and investors (see p12). And equally importantly, it can stop
3,000 of them what they want. the growing voids across the retail landscape which impair shopper
WITH ANY CERTAINTY EXACTLY choice, community vibrancy and economic health.
In the next section of the report, there is a film about the fascinating
WHERE WE WILL BE IN 12 results that this research generated. WHERE NEXT?
MONTHS’ TIME” The generational differences that the research tracks are going to It would, of course, be foolhardy to try and predict with any certainty
become increasingly important as the gap between the youngest exactly where we will be in 12 months’ time – so we won’t.
and oldest in our societies grows bigger.
But we hope that the themes and ideas that this report touches on
A NEW WAY FORWARD? here give some clarity about the nature of the market.
As mentioned, CVAs are now having a substantial impact on the We hope that the dots it connects help to shape your strategic thinking
market. In the report, we have looked at how the CVA process might and we would, of course, welcome the opportunity to discuss these
be reformed to produce a more equitable state of affairs. trends and how they can feed into strategic implementation.
However, making an aspect of the insolvency process more fit-for-
purpose is not going to solve the inherent problems that the retail
property sector faces. How we got here is a matter of various factors,
but how we are going to move forward will need clear thinking
and decisive action.
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WATCH THE FILM
What the shoppers say
Matt Thompson and Elle Hunt present some
highlights of the YouGov research which
canvassed the views of 3,000 shoppers
across a generational spread from ‘18-80’.
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RUNNING FOR COVER:
LIVING IN A CVA WORLD
The retail property sector has endured some seismic events in the last 12 months
which have dislocated both the occupational market and the investment case
for owning retail property. Is it time for a new approach to leasing?
There is of course only one dominant theme in retail property today: CVAs. They have been used in all types of business sector and, our firm’s
Who would have thought that this obscure restructuring instrument, that Insolvency team can tell you exactly why they can have value for all
many of us have had some limited involvement with in previous years, parties – so long as they are used appropriately in the right circumstances.
would become so central to the workings of the retail property market.
A business whose model is materially outdated, which has too little
We believe it’s time to look at CVAs and how they can be reformed cash to service its liabilities, or is overly burdened by debt to be
to make them more fit-for-purpose. meaningfully profitable, is probably going to fail and a CVA or administration
will be unlikely to save it without fundamental changes being made.
And we also want to debate the need for of a new model for retail
leasing that can bring better alignment to the interests of occupiers, The ways in which CVAs are being used has rapidly evolved over recent
DAN SIMMS landlords and investors. months. The circumstances behind the New Look, Carpetright, House
of Fraser and the many other recent CVAs are all quite different and
Co-head of Retail Agency CVAs: USE OR ABUSE? their effectiveness will vary.
The irony about CVAs is that they were introduced to try and achieve The original thinking was that they provided a lifeline for a business
a softer landing – for both businesses in financial distress – and also instead of consigning it straight into the suspended animation of
for the creditors of that business. outright corporate failure.
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Unfortunately, as the saying goes, the road to hell can be paved with TIME FOR REFORM?
“WE ARE LIKELY TO SEE THE good intentions. Any tool from a hammer to a CVA can be used for
SUCCESS RATE OF CVAs START either good or bad effect and there is now a major question mark The retail market is now starting to respond in a more co-ordinated
about the use and abuse of CVAs. way and the feedback we receive from many property owners, occupiers
TO IMPROVE DUE TO THE FACT and advisors is that the system is not fit-for-purpose and will now
There are very few examples where a CVA brought the ability to need change and perhaps some strong new regulation.
THAT THEY ARE NOW SOMETIMES properly restructure and enabled a retail business to move forward.
The basic facts of our recent research show that 83% of occupiers The stakes are too high all round for this not to happen.
USED BY OCCUPIERS WHO ARE that agreed a CVA in the 10-year period before 2018 subsequently
NOT IN GENUINE DISTRESS” entered into administration, radically restructured again, or There are many aspects of the CVA process that need reform
completely failed. and this should include:
More pertinently, it’s our view that some retailers who are clearly ● Only those creditors directly affected by a CVA should have a vote.
not at risk of imminent failure are now using CVAs opportunistically A property-focussed CVA should be voted on only by property owners.
to free themselves from leases on underperforming stores, particularly
as the wider creditor base appears to be happy to vote for a CVA ● There should be minimum standards of information provided with
restructuring that disadvantages only property owners. This is not a CVA. For example, profit & loss accounts should be provided on
what the CVA tool was intended for and it needs to be addressed. a store-by-store basis which reflect both their trading position prior
to a CVA and what the projected position would be following the CVA.
Ironically, we are likely to perhaps see the success rate of CVAs start This would help clarify why stores are included in CVA proposals.
to improve due to the fact that they are now sometimes being used
by occupiers who are not in genuine distress. ● And greater rights for landlords to take stores back after a CVA.
The single six-month window, typical to many CVAs, is not sufficient
and not well balanced compared to the tenants’ much longer break
option windows and rent reductions.
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We understand the inordinate pressures that retailers are currently You might think this sounds very familiar – well indeed it is, as the
“WE THINK THE PROPERTY facing as the long term structural changes to the retail market play out. Factory Outlet sector has used this model for decades and it is a key
INDUSTRY NOW NEEDS TO But property owners face equal challenges, and the way forward has foundation for the ongoing success of that specific part of the
to be an equitable approach which respects the situations of both retail world.
CONTEMPLATE A RADICAL – otherwise the long term viability of the retail property model will
be undermined. So why is this relevant for the rest of the sector? Precisely because
RESHAPING OF THE LEASE MODEL it deals with many of the challenges we are facing:
FOR MUCH OF OUR RETAIL A NEW APPROACH TO RETAIL LEASING
● It creates better alignment of the interests of landlords and occupiers.
PROPERTY” So how do we find a way to develop, own and indeed occupy stores
in the future, when the system is currently wracked by concerns over ● ‘White boxing’ coupled with more limited incentives mitigates the
fixed overheads, long lease commitments and capital intensive shop-fits? need for capital intensive shop-fits and depreciation.
We think the property industry now needs to contemplate a radical ● Mutual breaks mean only occupiers with a relevant, well adapted
reshaping of the lease model for much of our retail property. offer will remain, as both sides have a flexible route out of poor
performing sites.
We believe there will be an inexorable shift – particularly in some shopping
centre environments – towards a leasing model which includes:
● Five-year leases granted outside of the Landlord & Tenant Act
● Turnover linked rents
● Mutual breaks linked to turnover thresholds
● ‘White box’ unit specification
● Limited incentives
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We accept this will not work in some circumstances, particularly in
“OUR SECTOR IS ONLY PART WAY fragmented ownership High Streets and for flagship stores, but this
THROUGH A PAINFUL AND RADICAL could provide a well-balanced solution for many of our current problems
connected to retail lettings, particularly for struggling locations. This
STRUCTURAL CHANGE” approach will require a different type of thinking by the investment
and valuation community, but the factory outlet sector has shown
the way for creating a robust investment case whilst also providing
a product that is much loved by the customer.
This isn’t just blue sky thinking. There are plenty of individual examples
of similar leases being agreed across the UK. We are sure that
a number of forward-thinking landlords will start to adopt some
or all of these ideas in the near future on a more systematic basis.
Our sector is only part way through a painful and radical structural
change – how we all respond needs to be equally radical and innovative.
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WATCH THE FILM
Doing deals in a complex market
James Watson reviews activity in the
Retail Capital Markets during the past
12 months and looks at where the
opportunities may be for investors.
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WHAT’S HAPPENING IN THE SHED?
The retreat of Wesfarmers from the UK following its disastrous attempt to import
the Bunnings brand is a timely moment to look at this strand of the out of town
retailing market – especially as it is likely to be further impacted by the proposed
Sainsbury’s-ASDA merger.
There can’t be too many quasi-recreational activities which feel more WHY DID BUNNINGS BODGE IT?
British than DIY and gardening.
So why did Bunnings fail so spectacularly, and why are DIY operators
From the little shed at the bottom of your garden, to the big one on the closing in some of the very locations which should be best for their offer?
edge of your town, enhancing the home and garden is integral to the
domestic life of millions. And what’s more, we spend an estimated In the case of Wesfarmers or Bunnings, it seems an almost total
£16bn plus per annum on fixing things and making them look nicer lack of understanding of the UK market was a contributory factor.
around our homes and gardens. On shedding their ownership of Homebase to Hilco, they also blamed
TOM EDSON In recent times, the rising cost of homes and burden of increased Stamp
the post-referendum climate; although this feels slightly counter-intuitive
given the current trend of people home improving, not moving.
Duty has encouraged a growing number of people to stay put and
Director, Head of Out of Town Investment
improve their homes, rather than move on. And, of course, our weather plays a part. During the first May Bank
Holiday this year, after a freezing spring, sunshine across the country
In that context, you would expect the DIY sector, and the out of town meant that year-on-year takings at garden centres were up 50%.
property market it supports, to be thriving.
It will be interesting to see how Homebase fares from here. They have
already closed more than 60 stores and now have a network of around
250 – about 40 fewer than market leader B&Q.
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Meanwhile across the UK, a very uneven landscape is developing LONDON DIY STORE CLOSURES AND RE-GEARS
“MEANWHILE, AT RENT REVIEW for this type of shed operator.
OR LEASE RENEWAL SOME
DISAPPEARING DIY STORES
OPERATORS ARE PAYING A PREMIUM
In affluent areas across the South, many DIY and garden centre uses are
RENT JUST TO MAINTAIN being forced out by the demand for residential development. Lease expiries
are seeing DIY and garden stores sold for residential development.
REPRESENTATION IN A PARTICULAR Meanwhile, at rent review or lease renewal, some operators are
GEOGRAPHY” paying a premium rent just to maintain representation in a particular
geography.
The map opposite shows stores in London which have either closed or
have been re-geared at, in some instances, rents at 15% over market rates.
As a consequence, large population segments – especially across
central London – will have no big DIY shops within a 20-minute
drive time.
Meanwhile, outside of the South, operators will happily dispose of stores
even where the rents are off a lower base. This is usually because
the stores are too big, there’s too much competition or local spend
Closed
simply cannot sustain the representation in that area.
Closed
Closed Re-geared
Re-geared
Re-geared
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CAN WE FIX IT? However, there’s every indication that DIY stores need to improve their
“IN REGIONAL LOCATIONS WHERE presence online. At present, they only capture around 25% of the online
THE SECTOR IS NOT FLOURISHING, So, we have the strange situation where DIY stores and garden demand for DIY products. This ‘leakage’ to other general online stores,
centres are facing extinction but for very differing reasons. such as Amazon, is a challenge to making the most of the click-and-collect
LANDLORDS WILL HAVE TO LOOK culture. In this respect, Screwfix have led with a joined-up strategy
Well, to answer the question perennially put to Bob the Builder that fully integrates online with their physical stores through
LONG AND HARD AT THEIR – can we fix it? – the response is the slightly less emphatic: maybe. a responsive and reliable click-and-collect service.
LEASING STRATEGIES” First, it should be said that not all occupiers are in retreat. We are In regional locations where the sector is not flourishing, landlords
currently advising Leyland SDM who have a requirement to acquire will have to look long and hard at their leasing strategies. The retail
stores across London. However, these are more compact than warehouse sector is not going to be the only shopping environment
the traditional DIY footprint. which looks set to become intimately equated with the concept
of turnover rents, if it is to flourish.
Similarly, Wickes is considering a 10,000 sq ft store in West London,
close to lots of chimney pots. That would be much smaller than their A LOAF OF BREAD AND A BAG OF NAILS, PLEASE
norm and will clearly have a strong relationship with the brand’s
online presence. The Sainsbury’s-ASDA proposed merger potentially has more relevance
to the DIY sector than might first appear.
This approach, plus a strategy to put more appropriate product lines
– for example, kitchen and bathroom – close to major residential The assertion by Sainsbury’s Mike Coupe that there would be no store
development can reshape the offer of brands in particular locations. consolidation post-merger would suggest that the partners have something
up their sleeve, rather than just having lots of supermarkets. We’ve already
seen Sainsbury’s very successful absorption of Argos – one of the online
retailers which currently takes bites out of the DIY operators – and there
may be more initiatives afoot.
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Our analysis shows that – even though Coupe is emphatic on the SAINSBURY’S-ASDA ‘OVERLAP’ STORES
no-consolidation point – 30% of Sainsbury’s large store estate
overlaps with at least one ASDA store.
STORES WITHIN FIVE
ASDA STORES SAINSBURY’S STORES STORE OVERLAP %
REGION MINUTES’ DRIVE-TIME
The table opposite shows the ‘overlap factor’ where there are both OVER 10K SQ FT OVER 10K SQ FT OF EACH OTHER (BY STORE NUMBERS)
Sainsbury’s and ASDA stores of over 10,000 sq ft within five minutes’
Yorks & Humber 40 33 20 27%
drive of each other. The overlap factor is expressed as a percentage
of these stores within the total regional portfolio of the brands. East Midlands 29 36 14 22%
South West 37 64 19 19%
Across the regions, the greatest concentration of these overlaps are in West Midlands 40 45 14 16%
Yorkshire, the East Midlands and South West, but as you can see across
the country as a whole, the overlap factor is a not inconsiderable 14%. North West 74 51 20 16%
London 31 95 13 10%
Ultimately, the Competition and Markets Authority (CMA) will decide Eastern 36 64 10 10%
if the combined might of Sainsbury’s-ASDA constitutes a monopolistic
situation and therefore they would be compelled to dispose of stores. Scotland 58 36 9 10%
South East 45 110 14 9%
Of course, we could then have the slightly surreal situation where North East 29 20 4 8%
Sainsbury’s-ASDA are trying to unload stores that none of the competitor
Wales 30 13 3 7%
group want. This would then disprove the CMA’s view regarding
a monopoly in certain locations. Total UK 449 567 140 14%
Source: Colliers International
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SPENDING MONEY OUT OF TOWN A compact approach to both individual unit sizes and overall store
“COLLABORATION BETWEEN coverage levels is clearly more appropriate for the more online-driven,
LANDLORDS AND OCCUPIERS IS With regard to how the capital markets are viewing the wider retail click-and-collect world we now live in. This is as much about
warehouse sector, activity remained relatively constant last year with right-sizing as down-sizing.
GOING TO BE ESSENTIAL” £2.9bn of assets changing hands – almost identical to the 2016 level.
Collaboration between landlords and occupiers is going to be essential
Average yields have moved out from 6.3% to 6.4% but there’s been if we’re going to find a way through a CVA-hit, business rates
relatively good demand from institutions and local authorities. However, burdened and increasingly competitive environment.
as we approach the halfway point of 2018, it can be noted the raft
of retail restructurings have started to dampen investor demand Finally, be competitive; whether it’s the providers of retail warehouses
for multi-let retail warehouse parks outside of the South East. or the businesses that occupy them – everyone is going to have to
look at how their offer is compelling.
THINGS TO DO
Looking ahead, we’d suggest there are three strategies that both
landlords and operators in DIY and the wider retail warehouse
sector would do well to follow:
● Be Compact
● Be Collaborative
● Be Competitive
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LONDON
WATCH THE FILM
Three shops in London and
why they’re important
Sara Law’s film looks at a trio of successful
retailing formats and what valuable
lessons can be learned.
DOWNLOAD TRANSCRIPT
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BIG TROUBLE NEEDS BIG DATA
In last year’s Midsummer report, we profiled our Retailer Profitability Model
– a unique in-house model which enables estates to stress-test their holdings
in entirely new ways.
In the intervening months as the market has become even more difficult Trends in turnover through the tills is one thing. But how can Big Data
to read, it’s been good to see many more landlords adopting this be leveraged for landlords to assess the bigger picture? How can
profitability analysis approach. a comparison be made against nearby or similar locations?
Without doubt, store affordability remains fundamental today but for IN THE CROWD
landlords and occupiers – it is an important element of an even
bigger picture. The answer lies in an understanding of crowd behaviours.
However, with the kind of shifting picture we now face it is necessary We use anonymised, aggregated and secure transaction data from
to dig even deeper into how consumers are operating in the physical more than 2bn credit cards, to create a granular view of spending
MATT THOMPSON retail world. patterns that provides a credible base from which to benchmark
a location against nearby or similar offers.
Head of Retail Strategy We’ve all heard the term ‘Big Data’ as shorthand for taking an analytical
approach to mass information. This could not be more pivotal in today’s And, through leveraging aggregated data from the major mobile operators
retail climate. – we’re also able to understand the profile of crowds and group
behaviours in a specific location, compared against others. These mobile
For it is vital that any decision making, for occupiers or for landlords, data insights are underpinned by the behaviour of millions of users
is underpinned by the latest data, trends and expertise. There is no across the country, who generate billions of network events during
shortage of data available for landlords to stay on top of the performance the year. The clear advantage this approach gives is the flexibility
of their assets today, and with turnover leases becoming more prevalent, to assess and profile crowd behaviour at any time of day, close to
are increasingly exposed to regular performance of their tenants. real time, based on a comprehensive sample size.
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Combining knowledge of sales trends in the local area with observed Designed to support investment and portfolio strategy, the forensic
“COMBINING DATA, EXPERTISE crowd behaviours delivers the complete picture. Leveraging both data assessment of a given store is summarised in a simple score rating
AND EXPERIENCE IN RETAIL sets gives the perspective needed to assess tenant performance in one of 1-100 which encompasses future sales growth potential, risk
area against another and understand the crowd behaviours which drive of closure and reflects its overall ranking in the portfolio.
ANALYTICS IS FUNDAMENTAL those sales. Furthermore, through a granular approach, a view can also
be given on the impact of an event on attracting a new demographic TAKE THE DATA CHALLENGE
TO JOINING THE DOTS AND FOR and repeat visits or simply to better understand who visits a location
and at what time of day. As the retail sector continues to evolve, the spaces and places which
TRULY UNDERSTANDING CONSUMER serve it must do so too. Through harnessing rich and dynamic data
BEHAVIOUR TODAY” SUPERMARKET SWEEP sets, it is now possible to understand change in the physical retail world,
at the speed of change of consumer behaviour – without the use
Away from mobile and credit card spending data, but in keeping with of static and often unreliable datasets.
the themes in this report – our Supermarket Vitality Index has been
providing unique insights behind the recent headlines in the sector. Combining data, expertise and experience in retail analytics is
fundamental to joining the dots and for truly understanding consumer
What makes the Vitality Index unique is its ability to benchmark any behaviour today.
UK supermarket against all those under the same fascia. The tool
leverages over 20 metrics to assess the current health and future Decision-making based on stereotyping should be avoided at all costs
prospects for more than 6,000 UK supermarkets. if we are to deliver a retail strategy that successfully meets the needs
of the next generation of shoppers.
The tool is designed to assess any UK supermarket, ‘how the grocer
would’, drawing upon the data and techniques adopted by the site If you have not yet engaged with data on this sort of level, we would
research teams at the major operators. urge you to do so as it will soon be the ‘price of admission’ for executing
successful strategies in the new retail world we’re moving into.
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A STEP BACKWARDS
When we last reported in June 2017 we highlighted the stability of the region
and the anticipation in the market around some landmark new developments
due to open that autumn.
The dynamics are very different in June 2018 – with numerous CVAs, There is plenty of large scale development progressing around the
occupier failures, erratic shopper footfall and concerns over increasing region, including the Charter Place extension at intu Watford and
voids dominating the market. The contrast across a 12-month period The Beacon extension in Eastbourne both due to open in the autumn.
is huge. The Bargate Quarter development in Southampton has seen the demolition
of the old centre and autumn 2019 targeted for an opening date.
DEVELOPMENT OVERVIEW
It is clear that the types of deals and amount of incentives required
The two biggest developments in the South opened in autumn 2017. to attract occupiers have changed markedly over recent months and
Both Westgate in Oxford and The Lexicon in Bracknell have provided new space being leased today needs to be competitively and flexibly
high quality upgrades to the shopping experience in their respective priced with significant initial incentives to attract occupiers.
DAN SIMMS towns. Oxford had reported a slow start after opening with numerous
voids and delayed shopfitting programmes, which wasn’t resolved until RENTAL GROWTH ACROSS THE REGION
Co-head of Retail Agency well into this year. Bracknell looked to be a much more co-ordinated
and impactful opening, and anecdotal reports of trading were The London suburbs saw a decline in average prime rents of 0.2%,
immediately strong. the first decline in this region since 2009. 18% of suburban locations
experienced a decline in rents. This is a major change of fortune after
Hammerson’s extension to The Orchard Centre in Didcot opened at a six-year preceding period from 2012-17 when four of those years
Easter, while the redeveloped Tunsgate Quarter in Guildford opened reported 5% annual growth.
in May with some impressive shop-fits from occupiers such as
The Ivy, Oka & Loaf.
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The South East also saw a move to negative rental growth, with PRIME RENTS
“THERE HAS NOW BEEN SEVEN a decline of 0.8%, ending a five-year period of stability. A quarter
YEARS OF RENTAL DECLINE OUT of locations declined and only 10% saw any rental increase. ● For the first time since 2009, Outer London witnessed negative
rental growth of -0.2%. This was driven by nine of the 50 locations
OF THE LAST 10, WITH ONLY THE The Eastern region fared even worse, with a decline of -1.2% across in the region seeing decline, and 30 remaining stable.
the region, driven by reductions in 28% of locations. There has now
PERIOD FROM 2015-17 BREAKING been seven years of rental decline out of the last 10, with only the ● Over the last year, the South East has witnessed -0.5% growth
period from 2015-17 breaking the pattern of long-term decline. in rents, which is largely in line with the GB (excl. London)
THE PATTERN OF LONG-TERM average of -0.7%.
DECLINE” OUTLOOK
● There has been a polarisation in performance: 19 locations across
With huge pressure on the leasing market from the ongoing stream the region (13%) saw rental increases whilst 36 locations (24%)
of CVAs, an increasing supply of units and the hardening stance saw a decline in rents.
of most occupiers, we are anticipating a sharp acceleration in the
decline of average rents across the region coupled with incentive ● Across the 60 locations measured in the region, six saw increases.
requirements continuing to increase. Aside from Bracknell, which was boosted by the opening of
The Lexicon Centre, these were Wokingham (8%), Fleet (7%),
Maidstone (5%), Milton Keynes (5%) and Witney (4%).
● 15 locations witnessed rental decline. The greatest declines
were seen in Gravesend (-14%), Andover (-9%), Slough (-8%),
Fareham (-8%) and Ashford (-8%).
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THE BEST AND THE REST
Last year we reported on a period of strong growth throughout the South
West and Wales, which looked to be providing a platform for future progress
in the region.
This however, has not materialised, and after three years of consecutive An example of this is Cheltenham where rents remain unchanged from
rental growth in the South West, last year saw a -1.4% fall in rents. 2017 and will welcome a new 115,000 sq ft John Lewis department
This figure was matched in Wales, which saw no growth in the 21 store in October of this year.
locations that we tracked over the last 12 months.
With prospects for the UK’s top retail locations largely solid, the pressure
More significant in terms of the longer term trend is the number is placed firmly on ‘the rest’ to quickly adapt and provide occupiers
of locations which saw decline (25% of the total locations tracked). compelling motives for new acquisitions or they risk falling further behind.
The South West saw significant average prime rent growth in 2017 PRIME RENTS
(2.5% representing the highest outside of London and the South East)
HAL CLARKE and this change in fortune conveys the dramatic rental market shift
that has been apparent in the last 12 months.
● 1.4% decline in prime rents in both the South West and Wales.
Senior Surveyor, Retail Agency ● Three locations experienced rental growth with a decline
Polarisation between the ‘best and the rest’ retail space is becoming witnessed in nine locations.
– South increasingly apparent throughout the UK and this is no different for
the South West and Wales. The dominant centres in the region such ● Rents still remain above 2016 levels, on average.
as Bristol, Bath, Cheltenham, Exeter and Plymouth continue to benefit
from good levels of demand and relatively low levels of vacancy.
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“POLARISATION BETWEEN THE DEVELOPMENT KEY TAKEAWAYS
‘BEST AND THE REST’ RETAIL ● Work has commenced on the £40 million, 100,000 sq ft leisure ●Retail park schemes continue to perform well with very low
extension to Drake Circus in Plymouth which is set to be anchored levels of vacancy.
SPACE IS BECOMING INCREASINGLY by a 12-screen Cineworld IMAX cinema.
● Demand remains strong for top South West centres such
APPARENT THROUGHOUT THE UK ● Refurbishment of the Dolphin Centre, Poole is now almost as Bath, Bristol, Exeter, Plymouth, Cheltenham and Cardiff.
complete with the Kingland Crescent retail and leisure
AND THIS IS NO DIFFERENT FOR development due to commence shortly. ●Outlook appears poor for smaller centres with an oversupply
THE SOUTH WEST AND WALES” of retail.
● Neath’s town centre regeneration now has planning permission
and will look to add 110,000 sq ft of retail accommodation as ● With increasing pressures on the occupational market due to the
well as a new multi storey car park. Timings for the completion impact of retailer failures, modest wage growth and the recent rise
of this development are still to be confirmed. in business rates, the recent decline looks set to gather pace
as new transactional evidence is documented.
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RENTS COMPARATIVELY
RESILIENT IN DIFFICULT MARKET
In a difficult market, Midlands retail locations have fared relatively well
during the past 12 months.
By rising 0.4% on average, prime rents across the West Midlands have plus customers and other visitors which will definitely have a positive
seen their third consecutive year of growth. This was driven by impact on shops, restaurants and other amenities in the city centre.
performance in four locations – Newcastle-under-Lyme, Droitwich,
Cannock and Stratford-upon-Avon. We predict that the stabilisation of rents in Birmingham will continue over
the next 12 months. New development has created better environments for
Newcastle-under-Lyme saw the largest rental increase at 25%. those working, visiting and living in the city and are driving footfall and spend.
However, this was from a relatively low base of £40 per sq ft. Only three
West Midlands locations of the 33 monitored registered a fall in rents: Highlights for Birmingham this year will include the opening of the world’s
Stourbridge (-13%) saw the biggest decline; Nuneaton (-19%) and biggest Primark, which is due to open in December. H&M has opened
Walsall. Locations such as Wolverhampton, Coventry, and Sutton its new flagship store in the former BHS on New Street.
Coldfield all remained stable.
The food & beverage sector is no longer the driver of demand that
EMEL AHMET BIRMINGHAM it was in recent years. Whilst there are some requirements, the ‘race
for space’ has ended. Operators are being more cautious, particularly
Associate Director, Retail Agency Birmingham still has the highest average Midlands prime rent per sq ft given the rise in rental values. In desired locations such as Colmore
at £295 per sq ft. Whilst we did not see an increase in the city’s rents Row, occupier demand may outstrip supply but operators are no
– Midlands year-on-year, several landmark office developments will bring a new longer prepared to meet landlord’s rental expectations.
influx of shoppers and it will be interesting to see what effect this has.
F&B does continue to play an important role in the market. At Grand
HSBC is moving into Arena Central this summer while PwC has taken Central, when Paul’s Patisserie, Jones and Vodafone left the centre
150,000 sq ft in the Paradise development and will take occupation early some of the slack was taken up by lettings to Tasty Plaice, Comptoir
next year. These lettings will bring roughly 4,000 permanent employees Libanais and Holly Molly.
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“RENTS IN THE EAST MIDLANDS WEST MIDLANDS EAST MIDLANDS
HAVE DECLINED BY -0.5% YEAR- Other major developments happening around the West Midlands include Prime rents in the East Midlands have declined by -0.5% year-on-year.
the Bicester-style outlet village in Cannock. The opening is anticipated Lincoln saw the biggest rental growth in the region of 14%. This was
ON-YEAR” in 2019 and it will feature around 130 designer discount shops, due to limited availability within the prime pitch. Operators that want
restaurants, a visitor centre, a heritage trail and a nature reserve. to secure units within the town’s best location will pay good rents
to secure the space.
There is talk of a cinema, but this is yet to be confirmed. It is developing
into a go-to destination for brands like Nike and Adidas, but it remains Boston saw the sharpest decline of -17% which took rents to an
to be seen if it will be able to attract the more premium offers such average Zone A of £50 per sq ft – the lowest level that the town
as Alexander McQueen, Hugo Boss and Chanel. has seen since 1988.
Construction on the first phase of The Westside project in Wolverhampton Nottingham achieved the highest prime rents per sq ft in the region,
is due to start this year and be completed by early 2020 to include a with a further 6% growth last year. The intu Victoria Centre continues
multiplex cinema, 40,000 sq ft of new restaurants, shops plus 50,000 to play a key role in the city. However, now that the intu/Hammerson
sq ft of additional leisure space and a large hotel. Construction on the deal has not progressed, intu is progressing the redevelopment of the
first phase is due to start this year and will be completed by early 2020. Broadmarsh Shopping Centre which is intended to provide an alternative
– more discount and leisure-led – experience to the Victoria Centre.
In Coventry, there are plans to build a multi-million-pound scheme to create Aside from Nottingham, there are no other new major developments
the second largest shopping destination in the Midlands. The proposals planned in the East Midlands.
include restaurants, a cinema, bowling alley, hotel and big brand shops
to an area the size of ten football pitches. It’s being compared to
Touchwood in Solihull and is set to transform Bull Yard, Shelton Square,
City Arcade and Herford Street in Coventry city centre. Work on the
£300m project, called City Centre South, is due to start in 2020.
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Leicester has continued to struggle and is typical of most cities and PRIME RENTS
“IN THE F&B SECTOR, THERE towns within the region with an oversupply of retail space. Gallowtree
IS AN UNDERLYING DEMAND Gate saw the biggest drop in prime rents during the year, but with ● With an uplift of 0.4%, average prime rents in the West Midlands
new investment and a greater retail offer this location will improve. have recorded their third consecutive year of growth.
FOR SMALLER OUT OF TOWN Sports Direct is currently fitting-out the former BHS store on Gallowtree
Gate which will house the Sports Direct, Flannels and Everlast ● Birmingham prime were flat during the year but are still the
DEVELOPMENTS TO FACILITATE Gym brands. highest for the Midlands at £295 per sq ft Zone A.
THE GROWING REQUIREMENTS In the F&B sector, there is underlying demand for smaller out of town ● The East Midlands has seen a slight decline of -0.5% in average
OF THE ROADSIDE AND DRIVE- developments to facilitate the growing requirements of the roadside prime rents year-on-year.
and drive-thru operators such as Starbucks, Costa, Burger King and
THRU OPERATORS” convenience stores. This will contribute to the local economy and offer ● Having increased by 14% year-on-year, Lincoln saw the strongest
small scale opportunities to landlords and developers to maximise rental growth in the East Midlands on the back of constrained
income from secondary and what may be perceived as obsolete assets. supply.
● Nottingham continues to record the highest prime rents in the
region, and these grew on average by a further 6% year-on-year.
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WINNERS AND LOSERS
Last year saw a slow but steady pace of deals across the region however,
on average, there has been further rental decline.
The North West saw a -1.5% drop in rents during the last 12 months There has been a dramatic increase in supply across the region.
– double the previous year’s fall. A large number of BHS stores are still vacant and the situation has
been exacerbated by CVAs including New Look and most recently
These statistics mask fluctuation in specific locations and there’s M&S closures announced. This leaves a huge oversupply in some
winners and losers across the region. Polarisation continues with towns with limited demand. The issues are worst in the secondary
pockets of rental growth in prime locations like Central Manchester locations where vacancy rates have increased by 4.5% across
and the Trafford Centre which saw 4% and 1% average prime rents the region.
increases respectively.
Prime space is still being taken up, but the terms of deals are being
New flagship stores continue to focus on Manchester city centre with put under pressure as the successful retailers are taking advantage
confirmation of Uniqlo signing a deal to take the former BHS store of market conditions.
on Market St and rumours that Metro Bank have agreed terms on
LLOYD ENTWISTLE another prime site on the street. This is mirrored by further decline OUTLOOK
in secondary markets such as Oldham, Ellesmere Port, Northwich
Director, Retail Agency – North and Chorley which all saw double digit rental decreases. We are set for a bumpy ride over the next 12 months. While there are
a variety of pressures on retailers which are squeezing profit margins,
Last Christmas produced very mixed retailer results. There were some the continued structural change in the retail market place is the driving
very strong performers and success stories but overwhelming negative force creating a significant imbalance of supply and demand.
press coverage has helped to significantly dampen the retail
market’s spirits.
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There is just too much space in many towns around the country and Following the theme of this year’s report, town centres need to join
“FOLLOWING THE THEME OF we are seeing more of it come back to landlords. The major cities and the dots between various uses for them to function as a place to work,
THIS YEAR’S REPORT, TOWN schemes, as we have seen over the last few years, will continue to be the live and shop.
winners. Pockets in affluent and attractive market towns like Wilmslow
CENTRES NEED TO JOIN THE and Skipton will also have continued demand from the retailers who PRIME RENTS
are trading well and making money.
DOTS BETWEEN VARIOUS USES ● The North West has witnessed -1.5% decline in average prime rents
The secondary markets need to be re-invented and re-developed. As we – this was more than double the rate of the decline seen during the
FOR THEM TO FUNCTION AS A reported last year, this does not mean creating more retail space in an previous 12 months.
PLACE TO WORK, LIVE AND SHOP” already saturated market. This is true in even top markets and calls
into question if retail schemes like Chester Northgate should happen. ● Of the 39 locations that were monitored across the North West, only
This £300m development has been called into question by an open two saw increases. Manchester saw the highest growth (+4%) and
letter to the council from local businesses and property professionals. the Trafford Centre also witnessed 1% growth.
The question is can schemes be let without stealing tenants from
elsewhere in the town? In many cases the answer is an emphatic ‘no’. ● 11 locations saw a fall in rents, with Oldham witnessing the biggest
fall of -17%, along with Ellesmere Port (-14%), Northwich (-13%),
There is limited new development in the pipeline in the region. Barrow-in-Furness (-13%) and Chorley (-11%), all in the bottom
The Trafford Centre, Barton Square extension and refurbishment is still five locations in the region.
planned to complete in 2019, with a new Primark store as flagship.
● Manchester’s Zone A prime rent is now at £280 per sq ft.
Many town centres need wholescale redevelopment and re-generation This is the highest it has been since its pre-financial crash level
with the introduction of other uses, residential, work space, public realm of £300 per sq ft.
etc to restart the way the towns operate. Stockport is a good example
of this where £1bn is being invested and ownerships consolidated
to effect regeneration.
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< >You can also read
