Posted by Retail Destination on 1st Aug 2019

Last month, Ellandi hosted its 8th annual Retail Rocks retail property conference. The event aims to discuss key current topics in retail property and to encourage a positive discourse around the sector (positivity being in short supply at the moment). 

Isabelle Hease, Ellandi’s head of research and analytics, kicked off with a talk on the state of the market with some key insights into the retail investment landscape.  Shopping centre transactions have reached £577m so far this year with 14 assets traded, and it is the repurposing opportunities that were the most sought-after. It has again been local authorities that have been responsible for a sizeable chunk of all shopping centre investments so far this year.

The lending market across all asset classes remains reasonably buoyant, with levels of financing issued remaining relatively similar for the last five years. Looking to the equity market, while retail property companies are offering relatively attractive dividends, the market sentiment is that this isn’t particularly sustainable given falling rents, capex needs and increasing leverage. Shareholders are, understandably, much more pessimistic than fund managers, and no one really believes the published NAV’s resulting in retail property companies currently trading at huge discount.

In the background, bank lending pressure is increasing with borrower default more prevalent, and liquidity measures such as cash sweeps being employed.  With 78% of all outstanding debt in the market due for repayment in the next five years, stats from deMontford University show that lenders have reduced their exposure to retail assets by 13% over the course of the last decade.

Looking to the occupier market, Hease confirmed that there continue to be some positive headlines in certain sectors of  this market, with companies showing pre-tax profits and opening additional stores.

Hease concluded: “Yes, people are spending their money differently – there is a clear switch from discretionary goods and ‘stuff’ to essential goods and services – but the UK consumer has held up pretty well, albeit they are now more selective.  So for retail to perform occupiers need to reimagine how they operate and the products they offer.”

Next was a panel discussion with experts on investment talking through some of the key topics from Hease’s presentation.

Key conclusions were:

•  The need for sharing data and how important it is for investors, retailers, analysts to use this to inform decisions going forward

•  Positive markets such as factory outlets and retail parks have had a relatively steady performance and the market needs increased creativity from third party management and local authorities to find further opportunities within the market

• Looking at repurposing and regeneration of shopping centres and their towns: Residential is not always the ‘silver bullet’ and we are seeing a plethora of alternative use opportunities from offices, cinemas to laboratories, film studios and other creative hubs. 

Aviva Investors’ Barry Fowler talked through the challenges facing institutional clients trying to create alternative products from existing assets and how much debt is available from lenders given the wider economy. Good relationships and clear business plans including transparent data from retailers opens doors to lenders according to Savills. He called for a change in dynamics between retailers and landlords to include greater visibility of data for valuations . 

Laura Hurley from the Ministry of Communities, Housing and Local Government was next on stage and spoke about how the UK Government is helping the high street with its £675m Future High Streets Fund.  She said the government is taking this seriously, changing policies but will need the private sector to get behind this too. 

The second panel discussed a broad range of topics around town centre regeneration. Alteris’ Bert Broadhead asserted that the way retail is owned, operated and valued is ‘broken’ but this is where things start to get exciting.

The FT’s Judith Evans confirmed that when the word ‘community’ is referenced in articles about shopping and town centres in the Financial Times it generates a huge increase in number of readers. Therefore, when looking at retail potential it is important to home into what the community is engaging with, tapping into interest segmentation rather than demographic segmentation.

There is a need to explore how other retail arenas, for instance in the hotel, airport and exhibition industries are successful at the moment; they succeed because they connect into the life of a consumer – what role does a shopping centre play in their wider life?

What impact will shorter leases and extra costs involved in experiences in shopping centres play in investment in the future and what kind of income sources will there be?

Ellandi managing director and co-founder Morgan Garfield summed up: “We are delighted that once again Retail Rocks 2019 attracted a great audience with leading industry players participating on panels and voicing their views in lively discussions from the floor. People were honest in their views, there was acceptance of the challenges currently faced by retail but also a resolve to work collaboratively and creatively to try and find solutions,” he concluded.

Contact Us