Shopping centre rents set to fall, warns Colliers
Published: 22 June, 2010
Shopping centres are predicted to be the worst-performing property sub-sector for the next two years according to Colliers' authoritative Midsummer Retail Report.
Unveiling its annual market survey the morning before a Budget that is set to strip billions of pounds out of the consumer economy, Colliers warned that the investment market recovery of the past nine months had already ground to a halt for all but prime properties.
Retail property is expected to lag behind both offices and industrials, and within the retail segment shopping centres are expected to underperform the high street, retail parks and foodstores.
Static yields and falling rents are a recipe for falling capital values, and Colliers warned that average shopping centre rents would fall by 5 per cent in 2010, with no growth expected in 2011 and a paltry 0.5 per cent increase in 2012. The reason for this continued weakness is a fundamental imbalance between retailer demand and the supply of vacant stores, concluded Colliers director Greg Styles.
"As consumer spending drops, retailer demand will fall and availability will increase," he forecast.
And Colliers warned that wider factors than a short-term consumer downturn are at play. With online sales expected to reach 20 per cent of all sales by 2020 retailers are reassessing their property strategies.
"DSGi used to be on every high street in the country. Now it needs only 100 stores," Styles pointed out. "We're seeing a marked polarisation as retailers forsake regional and secondary towns."
And he questioned whether there was any way back for some, or whether they had become "terminal towns." As examples Colliers highlighted North Shields, where rents have fallen 60 per cent since 2006; Dunstable where rents are down 46 per cent and Paisley where they are down 31 per cent.
But some locations have continued to prosper. Guildford, for instance, now has rents almost 16.7 per cent higher than in 2006. "It's amazing what a lack of development and an affluent catchment can deliver," Styles said.
Colliers' investment director Andre James described a "gold rush" for prime assets since the end of the third quarter of 2009, with market turnover up 40 per cent year-on-year.
Yields have firmed markedly, and James cited Fremlin Walk in Maidstone as a case in point. The mall was bought last year off an 8.75 per cent yield and 'turned' this year off 6.5 per cent.
But James cautioned that falling rents meant that the yield shift had actually only delivered a 17 per cent uplift in capital values. And he warned: "There are real signs of the market softening now. Yields are moving out for everything but prime."
London has been a beacon of hope through the recession, according to Colliers, and a record zone A rent of £965 per sq ft was recently paid by the jeweller Piaget on Bond Street. Apple's flagship on Regent Street now achieves sales densities of over £2,000 per sq ft, making it the most profitable shop in the country.
And if anything, the gap between the capital and the rest of the country is only going to widen. Colliers points out that London is less reliant on public-sector jobs than other regions, and it will therefore suffer less from public spending cuts. Wales, on the other hand, has the most to lose.
With the 2012 Olympic Games set to deliver a £100m spending boost to the capital in 2012 and a limited amount of new development, London is forecast to see rental and capital growth while the rest of the country falls back.
