High street property woes gain as retailers teeter

Published 08th Jul 2011

High streets in urban hubs outside London have little hope of escaping already dismal vacancy rates, rents and capital values in late 2011, as a fresh round of struggling retailers shut shops outside the capital.

Retailers to fail this year include Focus DIY, Oddbins, Habitat UK, Moben Kitchens' owner Homeform, Jane Norman and TJ Hughes. Others, such as Mothercare (MTC.L), Thorntons (THT.L), Carpetright (CATVU.L) and Comet (KESA.L), are closing outlets.

More retailers will likely tread the same paths in coming months, and analysts say these will further hurt secondary and tertiary town centres, such as Sheffield and Blackpool, which are already saddled with 20 percent-plus shop vacancy rates.

Nick Gregory, joint-chief executive of property investor Local Shopping REIT (LSR.L), which rents out space mainly to convenience shops and independent vendors, said the UK was likely to be left with a reshaped retail landscape.

"I don't think it's an issue of rents falling to a level where everybody starts filling up again. The problem is that we've had a structural change (in) that we don't need as many (shop) units in some of these locations," he told Reuters.

"A lot of the secondary property ... has probably not fallen in value as much as they have the potential to do. So secondary could very well move further out in value," he said.

Figures by Local Data Company showed 14 percent of more than 168,000 shops across 794 town centres were empty at end-2010. In February, the Centre for Retail Research said it expected about 10,000 shops to close in 2011.

Several analysts told Reuters more retailers will go to the wall this year as consumers, grappling with rising prices, low wages growth, a lack of credit, job insecurity, a stagnant housing market, government austerity measures and fears of interest rate rises, further rein in spending.


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While some retailers' property portfolios have been snapped up by others, their collapse is expected to cost landlords up to 393 million pounds in rent payments for unexpired lease periods, Investment Property Databank said.

"In many respects, it's sorting the stronger retailers from the weaker," said Helen Beckett, associate director at Town Centre Securities (TCSC.L), which holds a number of high street shops, in cities such as Leeds and Glasgow, in its portfolio.

The high street has to reduce its dependency on retailers and rope in a mixture of tenants to survive, she told Reuters.

"The best towns will probably see 3-6 percent rental growth per annum over the next five years, the good secondary towns 1-3 percent, while the tertiary towns would be lucky to see any," said Savills' head of commercial property research, Mat Oakley.

"It's difficult to see how they're going to recover from an ever rising vacancy rate, these towns where 20-30 percent of the shops are vacant. The last thing they need is more retailers going into administration," he said.

Several analysts told Reuters the high street woes would further widen the yield gap between prime and secondary retail property markets, with investors preferring shopping malls, central London, and more affluent towns.

"With regards to the chains that are rationalising and contracting, they're likely to try to retain shops in or move towards stronger centres, which may be high streets or shopping centres," Martin Davis, head of research at property consultancy DTZ Holdings, said.

In May, Savills said yields on prime high street property would tighten further from their first-quarter 2011 average of about 5.5 percent, while those for assets in secondary towns would languish between 8-10 percent.

Source: ' Reuters '

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