Stark contrasts in performance reported across West’s towns

Retail analysts at Colliers International remain cautiously optimistic the sector will finally emerge from the doldrums by the turn of the year despite the fairly downbeat picture revealed in this year’s Midsummer Retail Report. This year’s annual forecast covering the sector’s prospects from 2011-2012 was unveiled to business leaders from the South West at a special invitation event held at Bristol’s M Shed.

Retail director Richard Saunders said although total returns for the retail sector are forecast to be flat he felt the market had found a more realistic level.

“The retail sector in the South West and South Wales is broadly in line with national trends although clearly some locations are more resilient and sustainable than others. Occupancy rates in a lot of the West’s market towns remain fairly high. Rentals are at a sustainable level so we can hopefully move on. The only way retail can go is up.”

Out of a total of 36 towns and cities surveyed in the South West average zone A rents per square foot remained stable in 20 locations and had risen in just two, Taunton (up 4.5 per cent) and Wells (up 45.5 per cent)

Rents had fallen in 14 locations with Swindon (down 29 per cent) and Torquay (down 27 per cent) the worst performing centres.

Richard said: “Swindon has suffered a drop in rental values due to challenging market conditions in the town which is further illustrated by the town’s main shopping mall, The Brunel Centre, going into receivership in December 2011. Hopefully Swindon has now found its level which will be affordable to retailers considering the town against other locations and to build on the success of the redevelopment of Bhs on The Parade - which includes River Island and Topshop.”

In stark contrast the cathedral city of Wells saw rents rise by 45.5 per cent. “This success is underpinned by its catchment area of wealthy locals and a strong tourist industry. Wells is an example of a previously tight town with limited availability but recession leads to availability of units which results in retailers wanting representation in the city ending up in competition with each other - which in turn drives up rents.”

Nationally, retail capital values grew by just 1.3 per cent in 2011 with shopping centres the weakest performer (falling by 0.3 per cent) and supermarkets the strongest (increasing by a modest 2.5 per cent).

In the year end to April 2012, capital values have fallen across the retail sector by -1.5 per cent. Shopping centre values fell the most (-3.3 per cent) followed by standard shops (-2.3 per cent). Supermarket values fell the least, with the IPD recording a marginal -0.1 per cent decline.

Richard Coombs, Director responsible for Investment across the south west, said in the absence of bank debt and with institutional demand dependent on new cash flows into the unitised funds, demand and pricing will increasingly be driven by cash buyers.

“They may be able to take advantage of opportunities arising from bank disposals of distressed portfolios as the process of financial deleveraging accelerates. Buying opportunities present themselves where prime retail assets in the best locations have been let off re-based rents which provide a basis for future rental growth.”

He predicted that barring a European financial catastrophe and subject to forecasted improvements in UK economic performance, positive capital value growth would return in 2013 and strengthen considerably in 2014.

The Midsummer Retail Review revealed that supermarkets continue to lead in 2012 and are forecast to be the only retail assets with positive capital value growth – a modest 1.7 per cent. In contrast, shopping centres continue to underperform with capital values falling by -9.9 per cent; and this may understate real declines in the sector.

Richard Saunders said: “Turnover rents and shorter leases have become a common feature of the market and landlords are still feeling pressured to ‘do deals’ to keep units occupied.”

“Given the downgraded forecasts for household spending, disappointing wage growth, as well as continuing weakness in consumer sentiment and the growing impact of internet sales, shop trading is expected to remain difficult with operators continuing to seek ways to reduce costs. Positive rental growth across the retail sector is not expected until at least 2013.”

The only sector forecast to deliver positive rental growth in each year of the forecast horizon is supermarkets which will move in line with inflation. This is followed by retail warehouses with flat growth forecast in 2012, followed by successively stronger growth over the course of 2013 and 2014.

Standard shops and shopping centres are forecast to see further rental declines in 2012, before strengthening on the back of a general economic (and consumer) recovery in 2013.

Richard Saunders concluded: “In our view, the start of a new recovery is likely to be in early 2013. Recent data from the OECD also suggests that the UK economy will reach a positive turning point within this time frame.”


Photo (l-r): Mark Charlton, Richard Coombs, Peter Brunt, Richard Saunders, Laurence Edwards, Katy Bapty and Tim Davies.