In King Sturge’s annual Property Predictions, the consultancy’s head of retail, Charles Miller, forecast that vacancy rates would recover from their nadir of around 20 per cent to around 10-12 per cent by the end of 2010.
Many retailers have been reporting solid Christmas sales figures, and encouragingly for profit margins there has been less over-stocking in evidence. As a result, Miller forecast: “There’s going to be a temporary respite for retailers, and so there will be more of a balanced market going forward.”
But he warned that the picture would continue to be patchy. “There’s an increasing divide between the good and the secondary centres in terms of occupational take-up,” he said. “The rates will be higher in some centres as the recession continues to cruelly expose towns that are failing, highlighting the ongoing need for regeneration.”
Miller said that occupier demand is not dead, but retailers were being very selective and opportunistic. As a result, he forecast: “The negotiating position is going to stay with the tenant, so landlords beware.”
Against this backdrop, King Sturge is predicting that average retail rents will fall by 3.1 per cent in 2010 and by a further 1.3 per cent in 2011. It will not be until 2012 that rents start moving forward again, and this will provide a brake on the investment performance of shopping centres.
The lack of rental growth means malls are likely to be the worst-performing sub-sector of the UK commercial property market this year. King Sturge is forecasting a total return of 11 per cent for shopping centres in 2010, against 13 per cent for the commercial market as a whole.
By contrast out-of-town retail parks are likely to be among the top performers, with a total return of 14 per cent. King Sturge’s head of UK investment Neville Pritchard said: “Investors will continue to embrace the best quality retail parks, once again attracted by the value of limited Open A1 planning consents.”
King Sturge has registered 60 active requirements for retail park space from a range of operators, including some high profile brands like John Lewis Home, Best Buy, Next Home and TK Maxx Homesense. And Pritchard added: “There is a sense now that the occupiers who remain are likely to be survivors and that the scarcity of good parks is such that buying now for the medium term will not be regretted.”
Looking further ahead, Miller warned that the development market was in danger of repeating the boom and bust cycle of the past decade.
“In a very difficult market the supply pipeline has been derailed,” he said. “However the next wave of development is already being lined up for 2012/13, when market conditions are forecast to be more conducive to new supply.
“With this lumpy supply we’re in danger of building up a longer-term problem and excessive supply down the road could hold back growth,” he said.
Miller reiterated his earlier calls for government action to help iron out the peaks and troughs of the development cycle, in particular through the introduction of Tax Increment Funding which would allow local authorities to be more confident about bringing forward retail-led regeneration of their town centres. “More than ever, regeneration issues require innovative and proactive approaches,” he concluded.
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