Fruity times ahead for retail and leisure property
Barely a week goes by without a ‘shock!/horror!’ retail supply statistic hitting the headlines. In the last couple of months, we’ve seen figures estimating national supply at 20 million sq ft (Savills) and the number of retail units topping 40,000 and set to rise (JLL). These numbers are from established property players, not scaremongers, but even the level-headed LDC-BRC vacancy monitor, while last month reporting an uptick in the national vacancy rate, dropped the number bomb that one in seven retail units are vacant.
Assuming no further lock-downs I can only see demand ticking up…and as supply reduces, rents re-base and shorter, more flexible leases become the norm availability will inevitably start to drop. Let’s be clear though, not all existing retail space is viable.
The trouble with this constant drip-feed of worrying-sounding stats is that it can lead to the quite erroneous impression that the retail/leisure sector is doomed. So, to provide some useful context and a balanced view, this blog – the first in a P-THREE Perspectives series on retail/leisure futures – will consider what is really going on in the supply/demand equation.
Let’s start with supply: yes, there’s no getting around it, the headline numbers are high. Retail failures due to the pandemic haven’t helped, but bear in mind supply has been hugely inflated by a spate of department store closures.Back-of-an-envelope calculations put the total amount into millions of square feet. Yet, put those to one side for just a moment (don’t worry, I’ll come back to them shortly) and a truer picture of supply emerges. Especially when we take the development pipeline into account. What development pipeline? Precisely my point: very little brand new retail space will be coming to market for some time.
To see the true potential direction of travel for retail we need look no further than the restaurant sector, arguably now some six months’ ahead of the retail curve. Availability of fitted restaurant units soared at the start of the first lock-down. And then something interesting happened: as rents dropped, a combination of new entrants (now able to clear the previously unassailably high barriers to entry) and established restaurateurs saw an opportunity to grow and went for it. The result: availability of fitted restaurant units as we head out of lock-down has dwindled to the point where they are now attracting premiums. Or, as Andy Laurillard, co-founder of Giggling Squid, put it this week: “The current property market is fruitier than it was before the crisis”.¹
Now I’m not suggesting for one moment that retail supply will magically drop overnight, but a similar pattern – of opportunistic occupiers taking space – is already emerging on the high street and in shopping centres. Take Hugo Boss’ recent move into 8,000 sq ft on Oxford Street earlier this year, Japanese fashion house A Bathing Ape’s opening of 7,000 sq ft on Conduit Street, as well as Mango’s decision to move its flagship London store into 15,000 sq ft on Oxford Street. Outside London, Mike Ashley’s Frasers Group has been opening in unexpected locations, like 11,000 sq ft at The Glass Works in Barnsley and 60,000 sq ft (yes, you read that right) at Wolverhampton’s Mander Centre. The food and beverage sector is also getting in on the act with US chains Wendy’s and Popeyes both planning a UK-wide rollout of new premises starting later this year.
It’s not just happening in the UK: toy manufacturer Mattel’s 43,000 sq ft deal for its first European family entertainment centre at Potsdamer Platz in Berlin illustrates how new entrants are prepared to sign up for space even in the middle of a pandemic.
And those former department stores? Demand for that kind of space is coming from a panoply of sources, from residential and student accommodation through cinemas to pop-up vaccination centres.
Assuming no further lock-downs I can only see demand ticking up from now on (Colliers recently logged 320 new retail and restaurant requirements totalling almost 1.9 million sq ft in London alone), and as supply reduces, rents re-base and shorter, more flexible leases become the norm (see future Perspectives articles for more detail on rents and leasing models) availability will inevitably start to drop. Let’s be clear though, not all existing retail space is viable. Our friends at retail data specialists CACI talk about ‘shopper missions’ and I think that’s an excellent way of framing future supply and demand. Those spaces without clarity of mission will struggle, but for those that offer it in spades (I’m thinking true mixed use schemes and balanced city centres in particular) there is, whatever the headlines say, a bright future.
¹ Propel Newsletter 10/05/21
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Our next Perspectives piece in our retail/leisure futures trilogy will focus on rents. Which direction are they moving and what are retail/leisure occupiers expecting for their money?
Article by Justin Taylor, Co-founder P-THREE
Photo credits: Unsplash
