Where next for retail?
Hands up who watched the TV documentary covering the fortunes of retailing in London’s Bond Street, perhaps predictably titled Billion Pound Street, at the end of last week? If you missed it, you can watch on catch-up via the ITV hub and I recommend you do. Not because it gave a huge insight into retail property nor even because it was particularly riveting watching (it wasn’t, in my humble opinion), but because it focused on retail for much longer than the cursory lurid headlines we’ve been used to (see below).
Has retail already passed its nadir? I’m wise enough not to make that kind of call, but change is certainly evident. Shopping centres still have some way to go on the path to recovery, but in other retail property sectors the outlook already appears brighter.
While the pandemic wreaked havoc with much of the UK economy last year, not to mention all of our lives, some parts of the retail sector fared much better than others. Bond Street, one of the world’s top ranking locations in terms of rent, did rather well as the high-end retailers located there moved quickly to allow its well-heeled clientele (the super-rich, the programme estimated, actually increased their wealth by 25% during Covid) to continue to spend, even in the middle of a global pandemic.
The programme brought into stark contrast the reality faced by retailers across much of the rest of the country whose customers have considerably shallower pockets. And it left me wondering: where next for retail?
Although the advent of omnichannel retailing earlier in the 2000s meant that many bricks and mortar stores at least had alternative routes to market when their physical doors were forced to shut, some, notably Primark, did not. While shoppers are now returning to the High Street, albeit tentatively, many retailers are, financially-speaking, if not battered, then certainly bruised.
Recently the British Retail Consortium reckoned that around two-thirds of retailers will face legal action when the government-sanctioned moratorium on rental arrears recovery ends in a couple of weeks. On the face of it this sounds like yet another bad news story for the retail sector. The effects of the moratorium ending on retailers, together with those of CVAs on investors shouldn’t be underplayed.
But at the same time, it is also true that certain sectors with the retail property market are starting to turn a corner. Brookfield’s acquisition of Hammerson’s retail park portfolio for £330m a couple of months ago, for instance, highlights a resurgence of confidence in that sub-sector. Across the wider market, we are seeing an increasing number of positives. Let’s consider some of them:
Footfall is up – after an initial surge when physical stores were allowed to reopen, there has been some reticence on the part of shoppers to return, though this is lifting. Barring any further lockdowns as a result of new Covid-variants, footfall can only continue to grow.
Market confidence is returning – the purchase of Solihull’s 650,000 sq ft Touchwood shopping centre by US investor The Ardent Companies highlights improved investor sentiment; P-THREE is aware of several other similar deals pending, which could well go through in the second half of this year.
Disposable income is up (for some) – economists have pointed out that while around half of the UK population has struggled financially during the pandemic, the other half has actually done rather well. Many of those furloughed found their net incomes rising as, during lockdown, spending opportunities were greatly curtailed. As a result, there is a pent-up volume of cash, a good proportion of which could be directed to retail stores.
The restaurant sector is growing – as existing restaurants re-open to dine-in customers and new ones born during the pandemic attract their own audiences the dining/shopping relationship is likely to flourish.
Does that mean that retail has already passed its nadir? I’m wise enough not to make that kind of call, but change is certainly evident. Shopping centres still have some way to go on the path to recovery, but in other retail property sectors the outlook already appears brighter.
If we want a 24-carat test of investor appetite at a critical time it is without doubt the potential sale of the Selfridges empire (not so long ago, itself the subject of a whole ITV drama series) at a reported price tag of at least £4bn. As P-THREE has previously pointed out, it is these once-in-a-lifetime opportunities which can have a significant impact on the surrounding retail market. While we await developments on Oxford Street, we can reflect that although some retail asset classes will still need to overcome considerable turbulence, some, and I say this cautiously, might just, like many Bond Street shoppers, be sailing into calmer waters.
Article by Justin Taylor, Co-founder P-THREE
Photo credits: Selfridges.com
