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Retail landlords will want to forget the last three years. The pandemic was a traumatic time when vast amounts were slashed off property values, lockdowns left thousands of tenants unable to pay rent and tumbleweed High Streets were deserted for months on end as consumers embraced online shopping on a scale never seen before. It has been a nightmare for so many businesses.
But those falls in value means it is now an attractive time for some investors to start buying again in the sector just as sentiment is picking up amid rising footfall and new store openings.
Last month Frasers Group — owner of retailers Sports Direct and Jack Wills, both better known for leasing shops rather than owning them — took the unexpected step of snapping up two shopping centres, including a £58 million swoop for a 900,000sq ft site in Luton home to chains such as New Look, Pandora and TK Maxx, as well as a Sports Direct branch. The firm’s head of real estate said at the time: “We continue to have confidence in the future of the UK High Street and remain committed to investing in sites which display huge potential.”
Frasers, majority-owned by founder and retail tycoon Mike Ashley, is not the only company going on a corporate shopping spree. Preliminary data shared with the Evening Standard by real estate consultancy giant CBRE estimates £1.3 billion was spent on UK retail properties in the first three months of 2023.
That was higher than the £940 million recorded in the final quarter of 2022 and above the same period pre-Covid in 2019.
So what is enticing buyers to put such assets in their own shopping baskets, even if there are risks in a still volatile economic environment? Rhodri Davies, head of UK retail at CBRE, says: “Prime shopping centre yields are at discount of around 30% compared with the long-term average. They are becoming an appealing asset class to a number of investors, evidenced by recent deals spread across the UK.”
Recent sales have included in commuter hotspot Woking, where hotels owner and property investor Arora Group bought the Peacocks centre out of administration. The company is considering introducing more leisure brands to the site, which marks its second retail purchase. A spokesman says it is an area the firm is looking to expand into further across the UK.
In London areas including Barnes, Richmond and Wimbledon are looking attractive to investors impressed by strong local footfall figures and the high levels of people working from home who shop locally, according to Will Lund, a partner in the retail capital markets team at Knight Frank.
Lund, who is also seeing strong interest in retail parks, says this month’s business rates evaluation will also benefit a number of retailers, some of which are expanding. That could give investors confidence to press ahead with deals.
Lund says: “The rising cost of debt will continue to limit the number of big ticket transactions, but we expect the momentum to continue for smaller assets.”
But for those with larger properties in their portfolio there is often value that can be added to sites by introducing non retail to sit along traditional retail. Take Unibail-Rodamco-Westfield, Europe’s biggest shopping centres owner. It last year launched 1225 rental flats it did in a joint venture next to its huge Stratford centre.
The landlord believes there is significant mixed-use potential to unlock across some of its sites. Scott Parsons, chief operating officer at Unibail-Rodamco-Westfield UK, says: “We continue to invest in our game-changing regeneration projects at White City and Stratford to ensure that they’re constantly evolving. Our destinations include far more than just shopping – we’ve got an unparalleled choice of dining, leisure, health, community and work spaces – and we’ve now diversified even further to incorporate a fantastic residential offer.” Other investors will also be looking at ways to boost property values and footfall.
While the retail property sector can breathe a sigh of relief that the impossible trading conditions it grappled with during the pandemic have calmed there are still casualties. Retail stalwart Paperchase was one of the first major victims on the High Street this year leaving a wave of landlords with empty stores, and only yesterday London jeweller Vashi fell into liquidation.
Ainsley Moore, head of UK real estate advisory at big four accountancy group PwC says: “There is a general consensus that pricing now more realistically factors in key income risks such as vacancy and rental discounts.”
But he cautions that within the retail real estate sector “there still remains an uncertain outlook on the future of the high street with a cost of living crisis and weaker economic backdrop”.