Retail Rocks 2018 Roundup
Posted by Ellandi on 15th Jun 2018
Last Thursday, Ellandi hosted it's 7th Annual Retail Property Conference #Retail Rocks. The event intends to raise the key topics 'du jour' in retail property and to encourage a positive discourse around the sector (positivity being in short supply at the moment).
Thank you to all those that took the time to attend what turned out to be an insightful afternoon, those that were unable to join, here's a little summary of what you missed.
“Absolute Beginners – David Bowie 1986”Local Authorities
We had a great panel discussion that included Local Authorities and their advisers. This was a chance for them to explain their real estate strategy. This is primarily to foster investment and regeneration where the private sector is not doing so but it is undoubtedly assisted by the capacity to access high leveraged and cheap debt from central government. The conclusion was that these investments would continue, albeit with greater scrutiny and a focus on “within boundary” investments. It was also widely noted that they need to take good (better?) quality advice in regards to both acquisition and ongoing management of their assets. Keith House, leader of Eastleigh council, summed up their view nicely “we take the view that the risk of doing nothing is greater than the risk of intervening.”
“Scary Monsters – David Bowie 1980” - The squeezed middle - calling out failing towns.
CACI and Ellandi’s research team combined to produce a presentation that highlighted evolving shopping patterns and the need for shopping places to serve a defined purpose. It identified that there is 17% too much retail space in the UK but that this space is not universally spread. That 49% of locations have too much space with the remaining half of locations having a more positive supply / demand balance.
They highlighted that retail locations that have lost their previous position in the retail hierarchy are especially vulnerable. These towns are no longer a destination but have far too much floor space to fill with simple local convenience retail. Swindon and Darlington were identified as good examples.
These squeezed middle locations will need major intervention and a change of use within the town centres in order to sustain a vibrant environment. This will require less retail space and more alternative uses.
Download the slide deck here.
“A Brighter Future – David Bowie 2002” – Next steps for Retail Property Market
A star-studded panel discussed a broad range of topics with points of interest being:
- The need for definition - that talking about retail property in generalities is not helpful or constructive in determining winners and losers. The panel agreed with CACI that purpose and fit for purpose were critical and felt that investors were beginning to recognise this. It will be important that the sector can clearly describe different assets in order to facilitate a return of capital to UK retail.
- There was discussion of values and how the valuation community needs to catch up with the market. This seems especially pertinent in the REIT space. Mike Old of Jefferies shared an analysis of discounts to NAV across the listed space and that this was especially prevalent for many retail-focused REITs. He made the point that it is more likely the values are wrong than the capital markets. Few people disagreed. However, this may inhibit M&A in the sector as the typical 20% to 30% premium to share price to acquire a REIT does not obviously present value.
- The need to invest cap ex to maintain and improve an assets competitive advantage was highlighted by Lawrence Hutchins CEO of C&R. He cited Ilford as an example of how a post-acquisition cap ex-investment of £1.5m had driven a c 8% footfall increase. Identifying assets with strong fit to catchment, a well-defined purpose and investing in active asset management can generate strong returns.
- There is scope to re-imagine struggling town centre space with a lower proportion of retail use but creating vitality and community through the integration of residential, hotel, health, leisure, employment and civic space. Solutions will need to be bespoke and will require bold and creative master planning but this is feasible. However, it will also necessitate longer-term investment timeframes. Local authorities are well-placed to drive this and it could play well with institutional investors. However, a precursor to this is likely to be that current owners realise that current values are unsustainable and are willing to sell or reinvest at a lower basis. (Takes us back to valuations…)
Retail Rocks 2018 attracted the best audience we have ever had 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. We have received lots of positive feedback from attendees that it was a focused and thought-provoking event.
Bisnow - Local Authorities hit back at accusation they are dumb money in £3.8B spree - but they can't hide from the risks
Estates Gazette -Retail to see further M&A as investors lurk on the sidelines