Retail investment slips as regional letting activity slides
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Retail investment could see a 60% drop if current levels of activity are sustained. It comes as regional letting activity in retail property slides and lease lengths drop - a touch. EG takes a look under the bonnet of the shopping centre market analysing investment, take-up, availability, who's taking space, where are they taking it and what real estate owners need to do.
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Retail investment slips as regional letting activity slides
- 1. 25/04/2017 Retail Market Analysis James Child – Retail Research Manager, EG
- 2. 25/04/2017 Retail Market Analysis - LATEST NEWS & ECONOMIC CONDITIONS - RETAIL INVESTMENT - LEASING, AVAILABILITY & STOCK ABSORPTION - PLANNING & DEVELOPMENT - CONCLUSIONS Agenda
- 3. 25/04/2017 Retail Market Analysis Latest Headlines
- 4. 25/04/2017 Retail Market Analysis UK Consumer Confidence 2007-2016 95 96 97 98 99 100 101 102 103 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2014: Scottish Referendum. 2015: General Election. 2016: EU Referendum. Source: OECD
- 5. 25/04/2017 Retail Market Analysis Total UK Retail Sales [£BN] Full Year - 50 100 150 200 250 300 350 400 450 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 TOTALSALES[£BN] 3.5% Source: ONS
- 6. 25/04/2017 Retail Market Analysis Total UK Retail Sales [£BN] (Q1) - 10 20 30 40 50 60 70 80 90 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 TOTALSALES[£BN] Source: ONS
- 7. 25/04/2017 Retail Market Analysis Total UK Retail Sales [£BN] (Q1) - 10 20 30 40 50 60 70 80 90 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 TOTALSALES[£BN] Source: ONS
- 8. 25/04/2017 Retail Market Analysis Share of overall spend coming online, 2007-2016 4.4% 18.3% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: ONS
- 9. 25/04/2017 Retail Market Analysis Overall retail investment SHOPPING CENTRES £347 MILLION SO FAR IN 2017 … INVESTED IN RETAIL PROPERTY RETAIL PARKS £263 MILLION £824 MILLION
- 10. Stratford – Stratford Centre. £141M Ilford – Exchange Shopping Mall. £78M Ipswich – Buttermarket. £55M Christchurch – Christchurch Retail Park. £34.5M Peterborough – Boulevard Retail Park. £33M
- 11. 25/04/2017 Retail Market Analysis Overall Shopping Centre Investment [£BN] £2.7BN £4.1BN £5.9BN £3.7BN £2.6BN £0.35M £- £1.00 £2.00 £3.00 £4.00 £5.00 £6.00 £7.00 2012 2013 2014 2015 2016 2017 28%
- 12. 25/04/2017 Retail Market Analysis Overall Shopping Centre Investment [£BN] £- £1.00 £2.00 £3.00 £4.00 £5.00 £6.00 £7.00 2012 2013 2014 2015 2016 2017 45%?
- 13. 25/04/2017 Retail Market Analysis Shopping Centre Investor Origin [£], 2012-2016 9% 19% 72% MIX OVERSEAS UK
- 14. 25/04/2017 Retail Market Analysis Overseas % Share of Total Investment 39% 17% 5% 22% 27% 2012 2013 2014 2015 2016 £810M £738M
- 15. 25/04/2017 Retail Market Analysis Local Authority Spend in 2016 £363M, 14% £1.4BN, 53% £738m, 27% £160M, 6% COUNCIL UK REIT OVERSEAS MIX
- 16. 25/04/2017 Retail Market Analysis Leasing - National Overview Top Four Retailer Sectors: Restaurants/F&B [29%] Fashion [17%] Health & Beauty [13%] Gifts & Accessories [11%] National Absorption Rate: 2.6 years of ready-to-occupy stock on the market. Average Lease Length: 7.8 Years [down 4.8% on last year] 21% [SQ FT]
- 17. East of England – up 4% Y-o-Y change in SQ FT let: West Midlands – down 13% South East– down 29% East Midlands – down 35% Wales – down 11%
- 18. Currently 2.6 Years of Stock Left At Current Take-up Rate… London, South East & East of England all with less than 2.1 years’ worth of stock left – More constrained than the national average. East Midlands: 4.8 years of stock remaining.
- 19. 25/04/2017 Retail Market Analysis Lease lengths – 2016 Average 10.1 8.5 8.4 8.3 7.8 7.8 7.4 7.3 7.2 7.2 6.8 6.8 6.6 0.0 2.0 4.0 6.0 8.0 10.0 12.0 LONDON SOUTH EAST EAST OF ENGLAND SCOTLAND SOUTH WEST NATIONAL AVERAGE WEST MIDLANDS EAST MIDLANDS WALES NORTH EAST NORTHERN IRELAND YORKSHIRE NORTH WEST
- 20. Lease lengths – 2015 vs. 2016 10.1 8.5 8.4 8.3 7.8 7.8 7.4 7.3 7.2 7.2 6.8 6.8 6.6 - 2.0 4.0 6.0 8.0 10.0 12.0 LONDON SOUTH EAST EAST OF ENGLAND SCOTLAND NATIONAL AVERAGE SOUTH WEST WEST MIDLANDS EAST MIDLANDS WALES NORTH EAST NORTHERN IRELAND YORKSHIRE NORTH WEST 2015 2016 25/04/2017 Retail Market Analysis
- 21. 25/04/2017 Retail Market Analysis Leasing – Occupier Sectors Top Four Retailer Sectors: Restaurants/F&B [29%] Fashion [17%] Health & Beauty [13%] Gifts & Accessories [11%] F&B jumped from 23% last year… helped by the expansion activity of several national chains… Other sectors which saw a lift in deals share include… Coffee ShopsHomeware
- 22. 25/04/2017 Retail Market Analysis Shopping Centre Pipeline – Under Construction 2.5 M SQ FT 1.8 M SQ FT 1.1 M SQ FT - 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 2017 2018 2019 2020 Shopping Centre (Under Construction)
- 23. 25/04/2017 Retail Market Analysis Shopping Centre Pipeline – Under Construction & Proposed 2.5 M SQ FT 0.7 M SQ FT 4.8 M SQ FT 3.2 M SQ FT - 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 2017 2018 2019 2020 Shopping Centre (Under Construction) Shopping Centre (Proposed)
- 24. 25/04/2017 Retail Market Analysis All Retail Pipeline 4.3 M SQ FT 5.6 M SQ FT 5.2 M SQ FT 0.8 M SQ FT - 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 2017 2018 2019 2020 Shopping Centre (Under Construction) Shopping Centre (Proposed) Retail Park (Under Construction) Retail Park (Proposed)
- 25. 25/04/2017 Retail Market Analysis Use Type Delivery – Where & When? 0 5 10 15 20 25 2017 2018 2019 2020 2020+ Retail Park Shopping Centre
- 26. 25/04/2017 Retail Market Analysis - LATEST NEWS & ECONOMIC CONDITIONS - INVESTMENT & YIELDS - LEASING, AVAILABILITY & STOCK ABSORPTION - PLANNING & DEVELOPMENT - CONCLUSIONS
- 27. 25/04/2017 Retail Market Analysis Retail park applications
- 28. 25/04/2017 Retail Market Analysis - Pre & Post Brexit based uncertainty stalling activity. - Local authorities benefitted in slowdown of overseas investment. - 21% drop in leasing activity nationwide. - Pipeline of new space very healthy – especially in out of town locations. Conclusions
- 29. 25/04/2017 Retail Market Analysis James Child – Retail Research Manager, EG Thank You. James.Child@egi.co.uk @JamesChildEGi
Hinweis der Redaktion
- Good afternoon everyone and thank you (name), my name is James Child and I’m Retail Research Manager at EG, and today I’m going to give you a brief over view of how the national retail market is performing, with a particular focus on the events of the previous 12 months and some insights and predictions as we move further into 2017.
- So on the agenda for this afternoon’s session, Firstly, I’ll be running over some interesting commentary coming from the market, give a brief economic overview and some points on Brexit and Article 50. Following that I’ll dive straight into retail investment, take a look at some year-on-year comparisons as well as some insights on investor origin, so looking at where the money is coming from. This will lead nicely into some analysis on national leasing activity, not just this year but across the last 12 months, and seeing what that is doing to availability and occupational rates in the regions throughout the UK. Then a focus on the development side of retail, looking at how much space is expected to be delivered in the coming years, and what that pipeline is actually going to look like. Then ill pull it all together and wrap it up for some overall conclusions.
- First up lets have a look at some of the stories we have been covering at EG recently……. Article 50 was triggered at the end of last month and we have been tracking commentary from the industry – difficult to predict what may happen over the next few months, let a lone the next few years –but we can highlight a few areas of concern, rising tariff prices, higher import costs due to the weaker pound. Increasing prices ultimately shifting onto consumers, especially those retailers with lower profit margins such as the bargain sector. Tie that in with many seeing a sharp uptick in business rates, against the potential loss of staff with immigration laws, Outside of macro economic and focusing on the micro economics Continued consolidations and store closures, leading on from the raft of administrations we saw last year BHS, Blue Inc Store 21 – we now have Brantano who have gone under and a period of CVAs and various other stores such as Jaeger and 99p stores flirting with closures already in 2017. This is coming at a time when we are seeing increased development in the market – especially in out of town locations. Despite internet spend continuing to rise – and despite retail park footfall beginning to fall away. Have we now reached a state of oversupply? LOOK AT THIS CLOSER TO THE TIME
- Now before we dive straight into our own figures Something which was mentioned around the impact of Brexit is consumer confidence – so its worth us looking at that initially, as we can see confidence has been on a rollercoaster of sorts over the past couple of years, with some notable peaks and troughs for us to digest Now this graph, taken from the OECD, highlights historical consumer confidence over time. 100 represents the long-term average, and as we can see after spiking in 2014, there has been a staggered downward movement ever since. Of course, various political uncertainties around Scotland, the general election and the referendum have all contribute to this What we see is that actually, despite all of the doom and gloom surrounding the initial leave vote – confidence has remained robust, that curve continuing to climb steadily upward since that initial drop in June, and it also remains above that 100 line too.
- So has this side step in consumer confidence impacted retail sales volumes in any meaningful way? Looking at the whole of 2016 and comparing it with years gone by, we saw £387bn spend across the UK according to the ONS, up 3.5% on 2015, and also above the figure we saw in 2014. Within this, there are of course individual things worth pointing out – if you take out December which is by definition an anomaly in terms of retail spend due to the Christmas period, We see that 2016 actually accounted for the highest ever spends in September, October and November. showing resilience post Brexit There may well be statistical indications that confidence is waning, but it isn’t translating into a significant drop-off in spend just yet – BUT…
- Can we make any predictions for the year ahead? And what for 2017? Well we can see the historical fluctuations of the opening Quarter of the years back to 2005. For 2017 to be above that 2016 bar we need an excess of £30bn spent, and with 2016s march figure at 31bn, 2017 continues to look like a strong year thus far.
- Can we make any predictions for the year ahead? And what for 2017? Well we can see the historical fluctuations of the opening Quarter of the years back to 2005. For 2017 to be above that 2016 bar we need an excess of £30bn spent, and with 2016s march figure at 31bn, 2017 continues to look like a strong year thus far.
- Staying with sales, and something of course relevant to those invested in the physical retail world is the increasing influence of on-line retail. The proportion of overall has, unsurprisingly, trended constantly upwards since 2008 – back then, we were looking at below 5% of all spend being online, and that has since climbed to the point at xmas last year when it reached 18%. Where exactly the ceiling is for this growth in on-line retail influence is open to debate of course – and the lines between online & physical are becoming increasingly blurred thanks to the efforts of retailers and landlords to create multichannel sales platforms which complement each other… But with concerns about an oversupply of retail space – particularly in light of development activity, which I’ll come on to later – and with those high profile casualties this year already; I think it’s fair to say that the physical retail world is still re-assimilating to the reality of just how significant non-store transactions have become – undoubtedly the need for physical space is there, but in an ever-decreasing form… PROPORTION OF TOTAL CONSUMER SPEND ONLINE [2007-2016] USING AVG WEEKLY SPEND
- So moving onto figures indicating the status of the retail property market…beginning with Investment. We record so far in 2017 824 Million pounds invested into UK Retail – with shopping centres claiming just under half of that figure with just under 350 million pounds being spent on UK Malls, and retail parks coming in at 263 million. Looking at a few of the significant deals which have got over the line in so far this year……..and you may have spotted these in our headlines as well…
- Firstly, the trophy deal of 2017 so far of course, Frogmore Estates £141M purchase of The Stratford Centre in London back in February. More recently and only three miles down the road, the Exchange Shopping mall in Ilford changed hands, Capital & Regional taking that one for £78M Also in February Butter market in Ipswich sold for just shy of £55M, National Grid investing in the East of England there Worth noting on the out of town front also, Orchard Streets purchase of Christchurch Retail Park, that one coming in at £34.5M And Infrared Capital’s purchase of Boulevard Retail Park in Peterborough, that one almost topping £33M
- Introducing Shopping Centre levels into this chart, we can see they’ve also dropped … actually to the tune of 28% year-on-year, down from 3.7bn to 2.8bn What we have seen here is that real relationship of supply and demand playing out, and if we add onto the chart the amount we have already in 2017, we might fathom that this year is going to be another poor year in terms of investment unless we see a real change from potential investors. 300m to 1.2bn? Based on current levels of investment. Which would equal a 60% drop…..
- Introducing Shopping Centre levels into this chart, we can see they’ve also dropped … actually to the tune of 28% year-on-year, down from 3.7bn to 2.8bn What we have seen here is that real relationship of supply and demand playing out, and if we add onto the chart the amount we have already in 2017, we might fathom that this year is going to be another poor year in terms of investment unless we see a real change from potential investors. 300m to 1.2bn? Based on current levels of investment. Which would equal a 60% drop…..
- If we look at the origin of purchasers over the past five years for shopping centres – we can see how prevalent domestic buyers still are, commanding almost 75% of overall share – but of course overseas investors do come in with a healthy proportion as well… These traditional investor groups have remained cautious over the past 12 months year – and that caution has manifested itself not only in that drop-off we saw in total investment volumes… but also on the supply side… There hasn’t been too much active marketing of new schemes for purchase – and much of those under offer or on the market are still spill-over malls from last year… But, what can we see if we isolate Overseas investors over the past 5 years…..
- …. Well it wont surprise too many to see that we have seen a upward trend since 2014. Through what does come as a surprise is perhaps that the curve slows down to such a degree in 2016. Many expected to see a real uptick due the economic reasons we have already spoken about – the weaker pound being the big one. Though it really shows that last years turbulent conditions played havoc with foreign investment intent. Interesting to note also, this chart here shows foreign investment as a percentage of all shopping centre investment. If we take the actual figures, overseas investment dropped from 810m to 738m yoy So who has benefitted from this slow down?
- The one big beneficiary of this slowdown in both supply and demand is local authority's. Last year saw un precented level of investment from local councils who took advantage of xyz to capitalise and invest in their own infrastructure. LOOKING AT PERCENTAGES AND AMOUNT INVESTED WE SEE XYZ The reasons behind this have been well documented of course – price points, cheap debt, chance to reinvigorate centre when private equity wont??? Is it a bad thing and is it likely to continue?
- Moving from investment to the occupational side of retail… and the four key stats I’ll look at on this front Weve seen a 21% decrease in leasing activity over the past 12 months in overall square footage terms and in terms of which sectors are driving that take-up; Restaurants and Food and Beverage transactions accounted or 29% of all deals in 2016, closely followed by Fashion on 17%. Health and Beauty and Gifts & Accessories the other main drivers. That boost in letting activity means we’re at 2.6 years’ worth of ready-to-occupy space currently on the market – and that’s a shrinking of availability from where we were last year – due to a combination of that strong leasing performance and surplus stock being converted to other use types… CHANGE THIS And lease lengths have fallen on average from 8.2 years last year to 7.8 this. Retailers still craving flexibility above all and committing to shorter lease lengths as a result.
- First to look at leasing, and to note a few regions… And looking here really at who’s been the best of the worse East of England saw a 4% increase in letting activity, in which was the only region to post a positive return year-on-year – its closest counterparts being Wales -11% and West Mids -13% The worst performers here include South West -24%, South East -29% and East Mids -35%
- Now looking at absorption rates in a different way… as we saw on the main slide, there are 2.6 years of ready-to-occupy space currently on the market at the current rate of national take-up… But there is an interesting regional story with this. – Basically a split… As with lease lengths, there are three regions which are more constrained in supply terms than the national average – and those are clustered around London – the South East, East of England and London regions all with less than the national average left in terms of years’ worth of stock. All other regions above the national average in terms of stock relative to leasing activity with between 3 and 4 years… and, it feels like we’re picking on the region a bit but the East Midlands the only region with over 4 years’ worth of ready-to-occupy space, likely as a result of that 35% drop-off in take-up activity we saw earlier.
- Lease lengths on average have dipped a touch to 7.8 years nationally, down from 8.2 years on the previous year. Looking at the chart it’s quite clear that London has skewed that figure a little with retailers committing to significantly longer leases in the capital, and indeed the South East, Scotland and also the East of England who sit higher than that said national average. The majority of the regions here are all around equal though, ranging between the 7 to 8 year length
- Finally on leasing side before we move to development… Occupier sectors – we saw at the start those four which have driven take-up over the last year… f&B brands have increase their deal share from 23% last year – helped in no small part by expansions of a few national chains. WHO MADE UP F&B – COSTA, GREGGS AND SUBWAY – MAKING MOVE TO RETAIL PARKS DEALS But fashion wasn’t the only big winner –COFFEE SHOPS AND HEALTH AND BEAUTY also saw similar jumps in national share of retail deals.
- Starting with shopping centres…. And space under construction at present… If we look at this slide we can see that for the rest of 2017 there is an additional 2.5 million square foot of space to be delivered, 2017 seeing an equally healthy amount delivered – just under 1.9 million sq ft.
- So, a fair amount coming forward on the ground at present – but as everyone knows…there’s a fair amount still to get underway which is scheduled to come through in the next few years. So, if we add those schemes into the chart in orange – we can see the potential growing for delivery of new space. And 2019 actually could see just under6 million sq ft of new shopping centre space delivered, should a couple of fairly large schemes and extensions come through as expected
- But going beyond shopping centres – and adding in out-of-town developments which account for a good proportion of the pipeline…. Now, there are fewer long-term prospects here, as many of the schemes in question appear likely to get underway imminently and complete late next year, or more likely in 2018. But if they do – we’re looking at just under 5 and a half million sq ft of new retail space delivered next year overall – with around 45% of that coming in new out of town parks and extensions to existing ones. That is, however, contingent on work getting underway later this year as scheduled on a few projects –MAYBE ADD SOME IN HERE? EXAamples of ones oushed back??. – So, an overall pipeline of around 16 million square feet moving towards the end of the decade …
- So as we saw, 45% of that space set to be delivered next year will be delivered in the retail park sphere and in 2019, a real spike and proliferation of shopping centre extension completions. This is best illustrated on this graph, as you can see those peaks and troughs of delivery and where they are actually coming. And that leads onto another trend we have investigated at EG last month – that being the proliferation of retail park or out of town application for new space.
- ….Which you may have seen in the magazine in March, This investigation was born from analysing our planning data – and finding that new application for new build retail park was at a ten year high – jumping 60% in 2016, though despite strong developer intent, perhaps some trepidation should be shown to stop the market crashing. The data in Ernest showed that a really important trends. a) On top of an already strong pipeline from last year, applications have been coming thick and fast,. c) last year 7.8 m sq ft of space was put at severe risk of closure by administrations – is there enough space set to be recycled? Why is more space being built when infact out of town uses could be used for other uses such as new homes? d) The retail park is changing Budget supermarkets are the new M&S. The retail park concept has changed dramatically over the past decade. The traditional warehouse-led white goods template for hardware and electronics is being eroded and in its place is emerging from this a more fashion and entertainment-led environment. Food stores compliment them as well as a healthy A3 provision, moving away from the fast-food drive-thru culture from the past. Interestingly, many new schemes coming off the ground are anchored by budget supermarkets such as Aldi or Lidl, which have flourished in the post 2008 economic climate. They are more likely to include budget stores such as Poundland or Home Bargains – other retailers who have fared well in the post-recession Britain. Though perhaps some stronger news, we mentioned apps being high – but if we looks at permission rates, perhaps developer intent is actually being abatted.
- The data in Ernest showed that a really important trends. a) On top of an already strong pipeline from last year, applications have been coming thick and fast,. c) last year 7.8 m sq ft of space was put at severe risk of closure by administrations – is there enough space set to be recycled? Why is more space being built when infact out of town uses could be used for other uses such as new homes? d) The retail park is changing Budget supermarkets are the new M&S. The retail park concept has changed dramatically over the past decade. The traditional warehouse-led white goods template for hardware and electronics is being eroded and in its place is emerging from this a more fashion and entertainment-led environment. Food stores compliment them as well as a healthy A3 provision, moving away from the fast-food drive-thru culture from the past. Interestingly, many new schemes coming off the ground are anchored by budget supermarkets such as Aldi or Lidl, which have flourished in the post 2008 economic climate. They are more likely to include budget stores such as Poundland or Home Bargains – other retailers who have fared well in the post-recession Britain. Though perhaps some stronger news, we mentioned apps being high – but if we looks at permission rates, perhaps developer intent is actually being abatted.
- So some summary headlines from that round-up. Investment across the board has slowed in both the year-to-date and 12 months figures, with the referendum result dissuading investors before any clear economic repercussions are made evident, both in terms of overall investment and both prime and out of town schemes. Local authorities have really benefitted from this slowdown in investment and decreased levels of supply and demand, using the opportuniry to take a 15% share of all investment last year, a truly unprecedented amount. However we did see that there was a real drop in leasing activity nationally, falling 21% Those retailers who did benefit from the change in economic circumastance inslucde f&b and etc etc Given the climate of consolidation and even administration as retailers continue to consolidate and assimilate, it isn’t too suprising that increased internet spend as well as rise in spend of millennials see this figure of leasing activity reduce. Following on from this and in planning terms – indeed developers are still showing clear confidence in the need for new retail space – and we are continuing to see a healthy glut of space come to market, as well as a plentiful amount of proposed space in the pipeline. It’s even possible that we might see 5.5 million sq ft of space delivered next year, and a total pipeline of 16.5m sq ft to come through before 2020.
- Thank you – I’m due to hand back to XXX now for the chairs conclusions, but if you’ve any questions I will be around at the end of conference – or indeed do feel free to contact me through other means… Many thanks.