Into the Void
Published: 06 January, 2009
Retail rents are poised to fall, according to new research from King Sturge. Graham Parker reports
In its annual property forecast agent King Sturge has painted a bleak picture for the year ahead, and warned that the downturn could stretch for several years beyond 2009.
Its headline finding is that retail rents are set to fall by 5.6 per cent in 2009, and landlords have little to look forward to for at least two more years, with a 4.7 per cent fall in rents expected in 2010 and 2.1 per cent
in 2011.
“There’s been a shift in the balance of power between landlords and tenants and it’s increasingly an occupier’s market,” says Charles Miller, the agent’s head of in-town retail. “Rental affordability is becoming a major issue, with retailers refusing – or unable – to pay premiums on new deals or reviews and more generous incentives becoming increasingly commonplace.”
The ratchet effect of upwards-only rent reviews means that most retailers will not benefit from rental falls, unless they are in the market for new space or their existing leases fall due for renewal. Added to which, King Sturge is warning that a large
number of existing stores could come to the market.
It forecast that retail sales in 2009 will be down 1.0 per cent by volume and 0.6 per cent by value. As a result, a number of players will fall into administration and the number of voids will increase. Miller says that in some shopping centres as many as 15 per cent of stores could be vacant
this year.
And the oversupply will be exacerbated by the continued construction of new space with a further 2.5m sq ft of new shopping centre space opening in 2009 including major new schemes in Cardiff, Aberdeen, Bath and Bury St Edmunds
“Over 90 per cent of this will be leased, but on very favourable terms to tenants with rent free periods, break clauses and generous incentives,” Miller predicts.
However, he cast doubt on the amount of new centres likely to open after this year: “A further 10m sq ft of new shopping centre space was originally set to open in 2010, a figure that now will simply not be realised. Some of the schemes will be put into a ‘holding pattern’, whilst others will not take-off at all.”
So which retailers will come to the rescue of the market and start absorbing this surplus floorspace? King Sturge’s research points to a number of sources. In particularly it highlights the grocers – not just the ‘Big Four’ but also Iceland, Waitrose and the Co-op – and the expanding non food operators like Primark, TK Maxx and Wilkinsons.
However, Miller advises landlords not to rule out anyone when trawling for new tenants. “Opportunistic site acquisitions will prove tempting across the market, even to retailers pursuing a cautious approach to expansion,” he says.
“Although a downturn will undoubtedly prompt a number of retailers to review their acquisition programmes, few will call an outright halt to expansion. After all, no retailer has a perfect portfolio, to the point of not assessing new opportunities. On this basis, the occupier market will inevitably slow, but it will not dry up completely.”
