It will be no surprise to anyone with even a passing interest in the news that UK retailers are struggling. A walk down many high streets in the country will reveal streets teeming with empty spaces where shops and banks used to reside.
A report by PwC from April highlighted the issue. It claimed that 2,500 shops were lost from the top 500 UK high streets in 2018. It also said that on average 16 shops close every day in the UK, compared to only nine that open. The number of store openings is half that of only five years ago.
High-profile retailers that shut stores last year include electronics retailer Maplin, fashion retailer New Look, and high-street stalwart Marks and Spencer. Debenhams is the most recent company to announce store closures, with the fate of 22 of its famous department stores already confirmed and another 28 closures expected.
It’s not all bad news for the high-street. PwC did point to an increase in the number of alternative outlets such as health clubs, ice cream parlours, and cake shops that are opening. It suggested this could be a sign that adaptable high streets may be able to flourish.
However, the number of these alternative outlets opening is currently not enough to offset the decline in stores such as banks, fashion retailers, value shops, and electrical stores.
There are plenty of reasons for the number of shops shutting. Lisa Hooker from PwC unsurprisingly pointed to “an acceleration in footfall decline on the high street with businesses continuing to see the impact of online shopping, increasing costs and subdued consumer spending.”
Decline in Shopping Centre Investment Demonstrates the Problems
There has been a significant decrease in investment in shopping centres. According to data from CoStar and reported by the Financial Times, there was only £20m worth of shopping centre sales in Q1 2019. This compares to a 10-year quarterly average of £783 million. The report says the quarter was the weakest since 2003 and probably this century.
According to CoStar, retail property has gone from a core asset in an investor’s portfolio to a specialist asset class. The following points may explain this trend.
Many struggling retailers including Mothercare, Homebase, and Carpetright have turned to CVAs to reduce costs and get out of expensive leases.
While CVAs can be a positive for the retailer, the result for landlords is that they don’t receive the rents they originally anticipated. The potential for CVAs and their apparent popularity leads to confusion over the value of retail properties, as investors are unsure about the return they will receive from their assets.
A January report by Savills claimed the retail property market is currently experiencing a valuation lag, meaning it takes time for prices to reflect a dip in demand. This can create a disconnect between what buyers and sellers consider to be the value of a property.
This, unsurprisingly, could have contributed to a reduction in transactions. It is likely to do so until buyer and seller expectations are aligned.
Markets with falling values can leave those who have taken out loans to purchase property vulnerable to loan-to-value (LTV) breaches – meaning that if the value of a property decreases beyond a certain level the owner is susceptible to the property being repossessed.
This is bad news for property owners with assets that are decreasing in value and could prompt them to put their assets up for sale rather than risk lenders taking charge of assets.
2019 Could Provide an Opportunity to Buy Prime Commercial Property Cheaply
Despite these negative signs, it’s not all doom and gloom within the retail property market, and there may be opportunities available to those able to take advantage.
Savills suggests there is a chance 2019 will see some of the best quality retail property re-priced too far, so they’re priced under the true long term value.
Savills outline a few factors that make a property desirable:
Reparo Finance Provides Solutions for Those Looking to Invest in Property
Businesses looking to take advantage of the potential to get prime retail property cheaply can look to Reparo Finance to gain the funding required to make a purchase. Reparo has experts that are skilled at finding solutions for those looking to invest in retail property. Here’s how it works:
To discuss a loan of between £25,000 and £2 million please get in touch with one of the team on email@example.com or 0161 451 5714.