Paul McNeive: ‘Retail rebalancing act still has some way to go’

0
20

Paul McNeive: ‘Retail rebalancing act still has some way to go’

The right moves


Paul McNeive
Paul McNeive

Traditional bricks-and-mortar retailing is continuing to take a hammering worldwide, and my instinct is that we are nowhere near the bottom yet. The main reason is the huge ongoing shift to online retailing, but there are other factors too.

The problem seems to have visibly worsened over the last six months, and I am noticing vacant units and more temporary trading in shopping centres, increasing vacancy in town centres, while shops off Grafton Street seem to be taking longer to re-let. But what are the effects on the retail property market, and can retailers and town centres fight back?

Globally, retail spending is growing, as are most economies, so retailers should be booming. The issue for the property market though is the fast rebalancing between the proportion of sales done through traditional shops, versus online. Retailers, many of whom own premises, or who lease portfolios of shops on long leases, are seeing their online sales becoming increasingly profitable, whilst bricks-and-mortar becomes disproportionately more costly to operate. Where retail groups have been sold, those with a higher proportion of online sales are attracting higher valuations.

Rates payable to local authorities are approximately 50pc of annual rent in the UK, which is causing carnage there. Here, rates should be between 15-20pc of your annual rent. Some retailers will have benefited from the recent revisions of rateable valuations in Irish cities, but others will have increased, due to local infrastructural improvements. But overall, whilst the abolition of upward-only rent reviews here has kept many retailers in business, rates have not fallen as quickly as rents, and are a disproportionate burden for struggling retailers. Locally, ‘anti-car’ strategies, the proximity of the border, and Brexit fears are adding to the problems.

The conversion of sales to online continues apace and in some sectors, for example, fashion, that rate of conversion is increasing. A slew of household-name retailers have disappeared from the British High Street, with knock-on effects here, and technology is also seeing businesses such as banks, post offices and travel agents, closing.

In the UK, retailers realise they are in a battle to simply survive. As regards property, they have adopted the attitude that ‘nothing is sacred’ and even the best locations can be closed. The impact has been felt in particular among the traditional department stores, and the view is that Primark (Penneys) is arguably the only active anchor around.

For institutional investors, there is concern about retailing and yields have moved out. But, whilst there has been some selling, retailing is still seen as a major asset class and represents approximately 25pc of the global property market. Landlords will have to fight even harder for good tenants and one effect has been a shortening of lease terms, to 10 years, with a five-year break option, which of itself reduces the investment value. But even that brings us more in line with mainland European and US leases, and the market will adjust.

Retailers are fighting back by enhancing their online platforms, but there is even a cannibalistic angle to that; the more sales done online, the more damage done to the shops. Google, too, is rebalancing, having bought some traditional retailers and it recently instructed agents to acquire a string of ‘click-and-collect’ shops across southern England.

Local authorities should help by reducing the rates for town centre properties, and increasing them for ‘edge-of-town’ retail parks and large shopping centres, and/or levying their cheap or free car parking. The opportunity for town centres is to create the social experience, with a focus on convenience shops, restaurants, coffee shops, bookshops, craft shops, beauty salons and galleries.

Retailers need to transform their performance on the customer experience – and should do their own disrupting by randomly offering lower prices in the shops. The rebalancing act will continue, and it has a long way to go yet.

}
});

#bb-iawr-inarticle- { clear: both; margin: 0 0 15px; }

Indo Business

LEAVE A REPLY

Please enter your comment!
Please enter your name here