Retail land owners profit in downturn

As the retail sector continues to struggle in the economic downturn, the hardships are not shared by the larger owners of their shops, which have seen resilience in rents that defy high street gloom. According to the Financial Times,

results from several of the big property companies this week show they have been mostly protected from the difficulties among many tenants, with British Land, Hammerson and Capital Shopping Centres confident of future rental growth even amid warnings that trading conditions could deteriorate.

Many of the larger UK malls and retail parks are either owned or part-owned by real estate investment trusts, such as Hammerson’s Bullring in Birmingham and CSC’s recently acquired Trafford Centre in Manchester.

The problems, according to Chris Grigg, chief executive of British Land, lie outside these “prime” properties, which are taking retailers away from the more secondary locations. Retailers are looking to close older and poorer performing outlets and relocate into new stores in the bigger and better centres to bolster diminishing profits.

“We do expect the British consumer to remain under real pressure for some time, putting pressure on all retailers. Indeed, this situation appears to have worsened in recent months,” Mr Grigg says. However, he said the stronger retailers will continue to separate from the rest, and “British Land will remain a beneficiary of such polarisation”.

While administrations are on the rise for many shops and brands, the effects have been less marked in the better centres. British Land, CSC and Hammerson all pointed to competitive tension among tenants as a driver for rental growth in otherwise almost fully occupied centres and malls.

According to Mike Prew, analyst at Jefferies, retailers can now reach half of the UK’s consumer wallet out of 90 key locations, down from 200 sites 40 years ago.

This partly reflects the rise of the regional shopping mall, which has tended to suck business away from local high streets. There has also been a move from the high streets to retail warehouses that have sprung up on the outskirts of towns and cities, and these again are still seeing strong demand from retailers at the expense of in-town locations.

Also, while footfall might be rising across most prime centres, analysts attributed this to the “lipstick” shoppers who spend £10 or less on low-value items. For these, a visit to a shopping centre is part of a family day out, which can mean business for dining areas but not necessarily for retailers.

In fact, the more retailers come under pressure, the greater will be the need to rationalise portfolios of stores into the best-performing locations, which should continue to benefit the larger companies with prime portfolios at the expense of high streets and secondary centres elsewhere.

Image: Manchester Trafford Centre
Source: FT©