Midsummer Retail Report 2019

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > EXECUTIVE SUMMARY After an unprecedented year of turmoil, the UK retail sector and the property market that it supports is having to reinvent itself.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > EXECUTIVE SUMMARY

OUR LATEST MIDSUMMER KEY FINDINGS

RETAIL REPORT LOOKS AT ● The ‘Golden Age’ of online retailing is coming to an end. ● Major retail development can no longer play the kind Online retailers will be increasingly compelled to engage of central role in regeneration that it has for the past THE CHANGES IN STRATEGIC with physical shopping environments to stay competitive. 50 years. This poses the question as to what will become the economic focal point of urban environments. DIRECTION THAT THE SECTOR ● At £1,868 per person, the UK retail ecommerce expenditure per capita is higher than in any other G20 market, with ● The Government needs to do more to support the Retail WILL HAVE TO FACE IN ORDER both online advertising expenditure and internet retail Industry which employs 10% of the UK workforce and TO REMAIN RELEVANT expenditure almost trebling since 2010. generates £400bn of sales annually. ● Environmental concerns over the impact of online shopping ● The war on plastic, the rise of veganism and growing AND VIABLE. delivery may eventually lead to the introduction of a opposition to the waste incurred by ‘fast fashion’ are ‘suburban congestion charge’. just some of the societal trends that will impact both how we live and how we shop. ● Shoppers are realising that there is no such thing as ‘free delivery’ – if roads are being damaged and air is polluted someone has to pay.

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AROUND A THIRD OF VACANT THE MARKET PRIME SPACE HAS BEEN RENTS LEASING “ ● Across the 400+ locations we monitor throughout the UK, ● Retailers that have a compelling offer and are well aligned EMPTY FOR MORE THAN the reductions range from just over 5% in Central London to to their customer base are expanding their store networks. nearly 13% in Wales, with every region showing notable falls. TWO YEARS. ● Lease flexibility, more turnover-related leases and lower ● Average rents outside of Central London are now 30% fit-out costs are helping many of these brands to build lower than 2008 and, taking into account inflation, in real their presence across the UK. terms rents have halved during the last decade. ● Uniqlo, Skechers, SpaceNK, The Works, Primark, Oliver VACANCY Bonas, Deichmann, Mountain Warehouse, JD, Rituals, Anthropologie and Aldi are just some of the brands that ● For prime UK shops, vacancy stands at around 11% but this is the tip of the iceberg when temporary lets, CVA are currently growing and doing new deals across the UK. ” situations etc are taken into account.

● Around a third of vacant prime space has been empty for more than two years.

● The overhang of redundant retail space urgently needs to be reduced by repurposing for other – non-retail – uses.

● Hotel operators have been the fastest to capitalise on this repurposing trend.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > EXECUTIVE SUMMARY

THERE IS A SUBSTANTIAL AND RETAIL CAPITAL MARKETS TURNING DATA INTO RENT

GROWING GROUP OF INVESTORS ● The repricing process across retail capital markets will ● Building on years of work with major mobile providers, “ – in some circumstances – be too extreme and this will Colliers are now assessing both historical and real time WHO ARE CURRENTLY SITTING present opportunities to buy into future returns. behaviour insights across hundreds of UK data sources.

QUIETLY ON THE SIDE-LINES ● There is a substantial and growing group of investors ● This analysis is part of an approach that can help landlords who are currently sitting quietly on the side-lines eyeing capture – in the form of rent – the value that shops play EYEING HEALTHY RETAIL healthy retail assets that are starting to look cheap. in driving online sales. ASSETS THAT ARE STARTING ● The private equity buying spree that took place in the ● As a measure of retail vitality, footfall should be replaced TO LOOK CHEAP. shopping centre market five years ago is rapidly unwinding. by the calculation of ‘total shopping hours’. ● However, lack of debt funding is hampering transactional ● Recent studies have shown that in some cases up to activity – particularly in the shopping centre sector. half of a brand’s online sales take place within five miles of stores. ● The disconnect between valuation and market pricing ” has never been more extreme.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < >

THE MARKET The statistics on retail property rents and vacancy make grim reading. Dan Simms reviews the numbers and considers the challenges.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > THE MARKET

NEW THINKING NEEDED This year’s Midsummer Retail Report has been heavily influenced by what is happening in society as a whole as well as the continued evolution of our retail property market.

This report’s theme is ‘A Change in Direction’ and we’re going RENTS to look at some of the robust and imaginative responses that Since we last reported, prime retail rents for new deals have DAN SIMMS need to be made in the face of what is an unprecedentedly fallen, on average, by 7%. challenging market. Co-head of UK Retail Agency Across the 400+ locations we monitor throughout the UK, the And it is today’s market that we’re going to look at first before reductions range from just over 5% in Central London to nearly we turn our attention to the future. 13% in Wales, with every region showing notable falls.

To be clear, we’re not here to put any gloss on the current Those figures don’t seem that profound until you consider that condition of the retail landscape. in a ‘normally’ functioning market we’d usually see movements of around 1 or 2% each year for most of the UK. Our latest findings on rents and vacancy make grim reading – especially when you consider that we focus primarily on prime Average rents outside of Central London are now 30% lower than rents and the vacancy among prime properties. 2008 and taking into account inflation, in real terms rents have halved over the last decade. The most recent figures for the last 12 months show the largest reductions since the 2008-09 period, when UK-wide rents fell 11%.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > THE MARKET

It wasn’t that long since Central London was registering double digit percentage annual growth, but even this most robust area has now reversed. RENTS – THE PAST DECADE GB Average ex Central London Looking ahead, with ongoing occupier failures, portfolio Prime Retail Rents rationalisation and no end to the CVA story we do not see any reason why this trend should not continue in the coming 12 months. (£) Supply tension creates rental stability and the prospect of growth, 115 but, of course, at present we have almost none. 110 105 VACANCY 100 On the face of it, the fact that 11% of the floorspace that we monitor across key UK locations is vacant, does not seem 95 30% excessive. 90 85 However, if you consider the number of shops where occupiers 80 remain in occupation rent-free to mitigate rates liabilities, temporary deals, CVA governed leases with multiple breaks 75 and leases being marketed etc then you start to realise that 70 this headline level of vacancy is just the tip of the iceberg. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Colliers As such, the headline drop in vacancy from 11.5% to 11.1% during the past year is actually masking a more profound situation. There has been a marked decoupling of the traditional relationship between vacancy and availability and there is now far more space available than that which is officially vacant.

Across total vacancy there is also a predictable gulf between prime at 6.1% and secondary space at 15.1%.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > THE MARKET

LOOKING BEYOND THE STATS THE REGENERATION CHALLENGE THROUGHOUT THE PAST 50 An inference that shouldn’t be drawn from these stats is that Throughout the past 50 years, retail development played YEARS, RETAIL DEVELOPMENT there isn’t activity in the leasing market. a pivotal role in the regeneration of cities across the UK. Uniqlo, Skechers, SpaceNK, The Works, Primark, Oliver Bonas, Major urban retail-led development had a profound impact on “ Deichmann, Mountain Warehouse, JD, Rituals, Anthropologie and the economic vitality on cities such as Liverpool, Manchester, PLAYED A PIVOTAL ROLE IN Aldi are just some of the brands that are currently growing and doing Bristol, Cardiff and Leeds. THE REGENERATION OF CITIES new deals across the UK. These are retailers that have a compelling offer and are well aligned to their customer base. They are all However, owing to the structural change we’re seeing in the retail ACROSS THE UK. making physical retailing work and they demonstrate it is wrong sector, it is clear that this ‘kick-starter’ for regeneration is now no to say that there is no future in running a store portfolio. longer available as the rewards for the substantial development risk no longer merit developers and owners getting involved. In last year’s report, we advocated the adoption of new, more agile forms of leasing which would help the market to find a way The question this begs is what is going to replace shopping to agree deals in this new retail world. as an engine for urban economic prosperity?

We highlighted the need for lease flexibility, more turnover related We need to take a fresh look at our urban economies and how leases and lower fit-out costs to better align landlord and tenant they can work. That is something that local or central government ” interests, and to find a way to break down some of the barriers must consider long and hard when thinking about the inherent to occupiers taking new space. value of nurturing appropriate retailing environments.

It’s positive to report how many leasing deals now adopt elements At present, it is very clear we don’t have a Government that of this approach or a similar variant and the way it has been understands, values or has the desire to support a vast industry received can be measured by the brands who are building that employs 3m people – 10% of the working population – and a physical presence across the UK. generates 5% of GDP with almost £400bn of sales each year.

As I mentioned at the outset, the report is very much influenced Retail employs 100 times as many people as the steel industry by what’s happening in society as a whole and one of the most and 16 times car manufacturing and deserves a much higher unwelcome side-effects of the struggling retail market is the priority than Government currently provides. impact on regeneration.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > THE MARKET

AT PRESENT, IT IS VERY CLEAR RETAIL IN DETAIL “WE DON’T HAVE A GOVERNMENT THAT UNDERSTANDS, VALUES OR HAS THE DESIRE TO SUPPORT THE RETAIL INDUSTRY. 5% £400bn GDP SALES ” 3 MILLION 10% WORKING POPULATION

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > THE MARKET

REIMAGINING RETAIL This is the obsolescent core that must be tackled. SPACE THAT HAS BEEN EMPTY In many instances, cities and towns that for centuries clustered around a central market square which came to be what we The challenge this creates for us as a consultancy is that we FOR THIS PROLONGED A PERIOD know as the contemporary shopping centre are now going are having to take a much broader approach to the problem to have to orientate themselves around something else. of redundant retail space, and have to employ a much more “ extended range of expertise. OF TIME WILL NEVER BE USED The key first step in taking this change in direction is removing huge swathes of redundant retail space. In that context, in the next section of the report there is a film AS SHOPS AGAIN. about how retail space can be reimagined to realise new value, Almost a third of the vacant space we monitor has been empty deliver interesting new uses and reduce the mountain of for two or more years. In all likelihood, space that has been empty space. empty for this prolonged a period of time will never be used ” as shops again.

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MONEY James Watson takes a look at what’s been happening in the retail capital markets.

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SELECTIVE OPPORTUNITY Repricing across retail capital markets is set to produce some buying opportunities.

I’d like to briefly run through what’s been happening across Of the total volume of centres traded in the past year, the core retail capital markets, where the roadblocks are and 56% were located in London or the South East. JAMES WATSON also highlight where we are seeing buying opportunities. There were some bright spots: we advised Crosstree in Director, SHOPPING CENTRES its acquisition of Edmonton Green shopping centre for £72m Head of Retail Capital Markets In 2018 there were £981m of shopping centre transactions at a 6.3% net initial yield. This is an active asset management across 23 deals – which was around a third of the 10-year play as was the purchase of Nicholson’s Walk in Maidenhead annual transaction average. for £24.8m by Aereli.

As we approach the half year, £340m of assets have traded The asset has lost 70% of its value in just over a decade indicating another year of subdued activity. with the latest sale showing a capital value of £130 per sq ft, but the sale demonstrated that demand exists for Assets in London and at commuter hubs which have scalable repurposing opportunities. demographic and critical mass remain more resilient especially when assets have alternative use angles.

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SHOPPING CENTRE INVESTMENT SHOPPING CENTRE ASSET TRANSACTIONS VOLUMES ARE DOWN 60% 9 160 147 8 140 YEAR-ON-YEAR. 135

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n 121 120

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l 6 l 106 i 100 b 5 £ 84 80

e 78 4 72 m

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o 3 V 40 2 34 26 24 20 1 14 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Volume £ billions Number of Transactions

Source: Colliers

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > MONEY

THE HIGH STREET RETAIL WAREHOUSES AS THE DEBENHAMS AND A number of bargain hunters have emerged on the High Street This sector has not been immune to the wider retail malaise during the past six months. Yields have been softening since and given that UK institutions – who have been the dominant ARCADIA SITUATIONS PLAY 2016 and the valuation lag is finally catching up with vendors’ owners are generally down-weighting their retail exposure – “ pricing expectations. there have been very low investment volumes. OUT, THERE WILL BE MORE Historically, this type of opportunistic buyer has looked to the With most funds effectively out of the market, the notable UNCERTAINTY BUT THE tertiary section of the market to generate required returns, exceptions were M&G’s purchase of The Crown Estate’s stake but now repriced prime and secondary assets look interesting. in Fort Kinnaird in Edinburgh for £162m, and Quadrant Estates’ POTENTIAL FOR REPURPOSING sale of the Gallagher retail park for £175m. An example of this convergence of buyer and purchaser is the Boots on Coney Street, York. One area of the sector which was relatively robust was DIY AND AN OVER-CORRECTION – especially for smaller stores in the South East that have The property was originally brought to the market in May of last residential development potential. IN PRICING WILL PRODUCE year for £16.45m reflecting a 5.35% net initial yield. At £940,000pa, the passing rent was double the ERV and despite there being We acted for LaSalle Investment Management on the sale of the BUYING OPPORTUNITIES. 4.5 years unexpired on the lease, the potential fall in rent at expiry Wickes store in South Ealing. Located close to a transport hub was just too great for buyers. The asset was repriced at 6.5% and in a predominately residential area, the store didn’t have but eventually sold to a local investor for just over £10m at a yield planning for residential conversion, but with 12 years on the of 8.79% – a 340 basis point discount on the initial quoting terms. lease, a strong covenant, and possible redevelopment potential, it generated numerous institutional bids and sold at a yield As the Debenhams and Arcadia situations play out, there will breaking 4%. be more uncertainty but the potential for repurposing and an over-correction in pricing will produce buying opportunities. It was a similar story at Ilford retail park where Montreaux ” Hotel operators have been the fastest to capitalise on this paid £17.65m at a yield of 2.4% on the basis of residential structural change and we are advising on two former department development upside. stores whose futures have been repurposed and are now being marketed as fresh opportunities.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > MONEY

Away from the prime multi-let parks or DIY stores, there’s been Last year saw just over £1bn of grocery asset investment THE PAST 12 MONTHS an uptick in interest from opportunistic buyers of smaller parks and we expect this to be surpassed this year. Within this activity, where the rents seem affordable and – more importantly – the differentiation between prime and secondary assets became HAVE SEEN A TURNAROUND where pricing has softened. even starker. “ This is perhaps the area we see the greatest current demand. The long-income funds are prepared to pay prime prices IN FORTUNES FOR THE New River and Pimco’s £60m acquisition of a portfolio of four for the best long-let assets with inflation linked reviews while retail parks from Threadneedle at a 9%+ yield is an indicator debt-backed propcos will acquire shorter lease length stores ESTABLISHED BIG FOUR of a wider intent. which have fallen out of favour from the traditional funds.

SUPERMARKET OPERATORS. GROCERY These polar opposites were illustrated by two deals. The first was In times of market uncertainty, many investors often return an off-market sale that we advised on which saw the Morrison’s to the fundamentals and there is perhaps nothing more Borehamwood sell for £46.5m at a net initial of 3.5%. This was fundamental than selling food. a rare, prime transaction.

Certainly, the past 12 months have seen a turnaround in fortunes At the other end of the spectrum was the acquisition by Altum for the established Big Four supermarket operators while the Capital of a suburban Manchester Tesco with RPI-linked rents discounters continue to acquire market share largely by opening for £28.5m at 7.8%. ” new stores. However prime store availability is extremely limited and the Online grocery sales have plateaued. At 7%, online’s current wider negativity towards the retail sector has led to an increase share of total grocery sales is virtually the same as the past in supply of secondary stores on shorter leases, leading to two years. a slight softening in yields.

This is actually good news for the operators who don’t make One trend worth highlighting is that there is continued interest money out of fulfilling online orders. from some of the supermarket operators to buy back over-rented, over-performing stores. There has been an increasing number And so the focus has come back onto physical stores where of these transactions this year. 90% of online orders fulfilled.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > MONEY

REPRICING AND REPURPOSING ROADBLOCKS HISTORY SHOWS US THAT The repricing and repurposing of assets will be the dominant Whilst we are seeing an element of equilibrium returning to the theme across retail capital markets for the foreseeable future. market post-digitally, there are two issues preventing a return IN TIMES OF UPHEAVAL, They will stimulate investment activity across all subsectors. to normalised trading activity. “ Undoubtedly, the repricing process across retail capital markets The first is debt, or rather a lack of it. It’s the life blood of the OPEN MARKET PRICING will – in some circumstances – be too extreme and this will private equity market and it is in very short supply. As a result, IS A BETTER INDICATOR OF present opportunities of buying into future returns. a growing number of proposed shopping centre transactions are failing to close. WORTH THAN VALUATIONS. There is a substantial and growing group of investors who are currently sitting quietly on the sidelines waiting for healthy assets The second is valuation. The disconnect between valuation to look cheap. and market pricing has never been more extreme.

The private equity buying spree that took place in the shopping History shows us that in times of upheaval, open market centre market five years ago is rapidly unwinding and these assets pricing is a better indicator of worth than valuations. will be effectively dumped back into the market. This will create a short-term glut of product with a distorted pricing profile. An increasing flow of distressed sales is bringing increased Active asset managers are rolling their sleeves up… transparency to the retail capital markets and is making the ” manipulation of values that much more difficult. We think this is a good thing.

Today’s market is tough, very tough.

However, somewhat paradoxically, a lot of the lazy, blanket thinking around retail and the property market which supports it is actually creating a market where there is undoubtedly selective opportunity.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > IS THIS THE END OF THE GOLDEN AGE OF ONLINE RETAILING? The online retailing landscape is changing dramatically. Margins are under enormous pressure, competition is intense and new taxation is being proposed.

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KNOWLEDGE Matthew Thompson looks at how new tech and analysis may be a way to rentalise the role that shops play in generating online sales.

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TURNING DATA INTO RENT If the ‘Golden Age’ of online retailing is no more, I would be tempted to say that the use of purely footfall – as a measure of health and vitality – may soon be following it into the pages of history.

To be fair, footfall remains a component of the analytic process, Because of lack of data and expertise in this area, retail leasing as does dwell time. structures have not yet evolved to encompass the full role that MATTHEW THOMPSON physical stores play in a broader omni-channel context. Assessed together, these metrics give a measure of ‘total Head of Retail Strategy shopping hours’ which, of course, is a far better yardstick Essentially, there has previously not been the ability to quantify than when someone walks past your shop for reasons totally what this synergy is in terms of revenue. That is about to change. unconnected with shopping. THE WORLD-WIDE WEB IS LOCAL Looking at the behaviours of people in shopping environments Recent studies, including analysis of hundreds of thousands of is increasingly crucial – and the assessment of these behaviours online shopping transactions, have shown that in some cases up to extends to beyond when they’re just in close proximity to a store. half of a brand’s online sales take place within five miles of stores.

These insights are, of course, important to retailers but they will The findings began to paint the picture of how physical stores also be vital for landlords who want to capture – in the form generate online purchases. of rent – the contribution that a physical store makes to sales channels beyond the till. In this instance, half of the brand’s online sales could be tracked back to purchasers who lived within five miles of one of its stores.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > KNOWLEDGE

This linkage between stores and online is becoming increasingly TURNING DATA INTO RENT BUILDING ON OUR WORK WITH clear, particularly now that we can also assess web behaviours So how can landlords quantify these relationships and turn THE MAJOR MOBILE PROVIDERS, at a localised level. that knowledge into rent? GOOGLE IT! Access to granular location data to assess the performance “ Google Analytics delivers valuable insights on web performance of assets has never been greater. WE ARE ASSESSING BOTH in terms of search results, website hits, ‘dwell’ and conversion HISTORICAL AND REAL TIME rate – all of which can be location tagged. Building on our work with the major mobile providers, we are assessing both historical and real time behaviour insights across In isolation, these web metrics may not indicate the value of an hundreds of data sources – across the country. BEHAVIOUR INSIGHTS ACROSS individual store – but blending it with local sales and transaction data, across all channels, brings this to life. What’s more, our analytics platform harnesses these insights HUNDREDS OF DATA SOURCES at any level of geography from district, street or even store level. The clear challenge for operators here is firstly the sharing – ACROSS THE COUNTRY. of data between all business areas and secondly, equipping This is leveraging big data in the simplest, most dynamic and themselves with the technical expertise to deliver the insight. digestible way – crucially, using a robust and consistent data set.

These insights enable location and store benchmarking like never before but also provides a platform for us to build richer insights when overlaid with turnover, rent and affordability metrics.

Take up of this data is fast evolving across an array of sectors ” outside of retail, including the Offices and Residential sectors, Financial Services, Media and Advertising and in the public sector – but retail has been strangely slow to adapt.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > KNOWLEDGE

THE EVOLUTION OF LEASING MODELS Part of the issue in retail is both landlords and retailers have DATA, DATA EVERYWHERE! been primarily focused on shaping their own business models to changing consumer behaviour, rather than on exploring how rent structures should adapt.

A welcome study from ICSC has suggested a range of newly emerging flexible rental models that can reflect the importance of a store in the wider ecosystem for a brand – using exactly this type of data.

One idea removes store turnover entirely and centres around ‘Shopper Exposure’ – using our measure of ‘Total Shopping Hours’ for a location.

Allocations for each store could then be made based on their share of shopping hours, to reflect the ‘Opportunity Afforded’. Perhaps a weighting could also be made to reflect digital exposure – given the tools are available to measure location based web performance.

This could include a share in uplift of local website visits and transactions following a store launch and could adopt a similar revenue structure to a Google, Facebook or Instagram – a ‘cost per click’ if you like.

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THE RISE OF THE DATA If, as we’ve heard, a retailer like Next is considering keeping IF LEASING MODELS ARE TO Fundamentally, none of this is possible without transparency loss-making stores open purely for online fulfilment, how does FULLY REFLECT THE MODERN between landlord and occupier. a landlord price that into rent? If leasing models are to fully reflect the modern retail market, In such circumstances, normal methods of profitability assessment “ and indeed if the value of the store is to be realised, then sharing will not always capture the inherent value of a store. RETAIL MARKET, AND INDEED of data is absolutely crucial. IF THE VALUE OF THE STORE IS A more dynamic approach to leasing is now achievable, but we This becomes increasingly pertinent when you consider that have a long way to go before this is realised. TO BE REALISED, THEN SHARING the profitability of physical stores may not be the primary reason for keeping those stores open. It doesn’t require an army of data scientists to make progress, but having expertise in data analytics will become a key differential OF DATA IS ABSOLUTELY in the journey to turning data into rent. CRUCIAL. ”

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > SHOPPING WITH A CONSCIENCE The war on plastic is now just one aspect of a growing lobby around socially responsible consumerism and this is now impacting shopping environments.

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FOOD Tom Edson reports on the much stronger recent performance of the UK Grocery sector.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > FOOD

TILLS RINGING AGAIN AS GROCERY OUTLOOK IMPROVES The past 12 months has seen much stronger performance in the UK Grocery sector from the traditional ‘Big Four’ through to the discounters who are now an established part of the supermarket scene.

It has been six years since Tesco announced its first annual for them. It’s a service that they need to offer but it is not profit drop in two decades, and followed that with a 2014 profit a profit generator. TOM EDSON warning. It is now back into growth – and managed to take some headlines away from Aldi and Lidl. Only time will tell what the Customer awareness of better and sometimes cheaper product Director, ramifications of the CMA’s blockage of the Sainsbury’s-ASDA lines in-store and a move away from a large weekly shop have Head of Out-of-Town Investment merger will be but it’s certainly left the sector’s second and third started to stunt online growth. If the proportion of total sales largest players with a lot of thinking to do about their strategy stays below 10%, it is probably a manageable ‘loss leader’ for the going forward. ‘Big Four’ but if the next generation – and Amazon – take grocery increasingly online this will present a challenge for the ‘Big Four’. Meanwhile, the expected entry of Amazon into the mainstream sector has yet to materialise, but the industry watches with interest. Tesco’s acquisition of Booker was completed in 2018 and all the signs are that the merger has been a success, with Booker Clearly, one of Amazon’s competitive edges would be its online growing 14.3% during the first quarter of trading of the newly presence and logistics capability. However, the proportion of total merged company. It also announced a strategic buying alliance food sales that are now done online appears to have plateaued with Carrefour in France to seek better terms with suppliers, at around 7%. This is good news for the established operators and started to roll out the ‘Jacks’ discount stores in existing as online grocery sales have been a long-term conundrum mothballed stores and new sites.

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At the same time, Morrisons’ vertical supply chain has been The discount operators, Aldi and Lidl, have outperformed the WHAT HAS BECOME VERY paying dividends, with the business as a whole growing by market and have been the most active grocery retailers in the 5.6%, of which the wholesale business contributed 4.3% growth. last 12 months. Their aggressive expansion plans continue with CLEAR IN RECENT MONTHS Aldi taking a further 70 new stores and Lidl opening a further We expect M&S’s £750m acquisition of a 50% stake in Ocado’s 50 during the past year. From existing estates of 815 stores “ retail business to result in improved short-term performance, and 700 stores respectively, the companies are both planning IS THE GAP BETWEEN PRIME but that has been bought at very significant cost. to have around 1,000 stores by 2022.

AND SECONDARY STORES. Ocado now has a clear lead in online grocery fulfilment. Digital The improved performance and outlook for the grocery sector sales platforms are time consuming and very expensive for retailers has been reflected in its property investment market, with to develop and there is an extremely lucrative market in selling the around £1bn of stores being transacted during 2018. tech to those retailers that lag behind. Since WM Morrison made the decision to engage with Ocado in 2013, it has subsequently What has become very clear in recent months is the gap between been developing its own in-store fulfilment model in order to prime and secondary stores. The long-income funds are prepared reduce the costs of the service that all the grocery operators to pay prime prices for the best long-let assets with inflation-linked are forced to accept. reviews. Meanwhile, debt-backed propcos are keen on acquiring ” the shorter lease length stores which have fallen out of favour Waitrose were under increased pressure, with falling sales reported with the institutions. The yield spread between prime assets towards the end of the year and the John Lewis group reporting and secondary properties is around 400 basis points. This spread a 98.8% fall in underlying profits for the first half of the year. has recently been reflected in the £46.5m sale of a Morrison’s It sold five “Little Waitrose” stores in Greater London to Co-op in Borehamwood at 3.5% NIY while a Tesco in Irlam sold for and Aldi and closed its 40,000 sq ft underperforming £28.5m reflecting 7.8% NIY. supermarket in Staines, Surrey.

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MARKET SLOWS AS CVAs BITE This is a historically robust region which is starting to feel the pain.

Retailers are still acquiring sites and there is demand for retail Overall, the picture looks fairly grim. The UK average rent decrease space, particularly in key London suburban locations and affluent (including London) was 7%, whereas the South East fell by 8%, JESSICA SHORT South East towns, but landlords are having to re-adjust their East Anglia 7% and Outer London close to 9%. expectations of what rents are achievable and be open minded Senior Surveyor, to alternative uses. Last year we reported that the London suburbs had seen growth UK Retail Agency finally slow and stall, but in the last 12 months we have seen these The pipeline of new space in the region was very limited. The last rents drop in all locations apart from Streatham. However, 12 months saw the launch of intu Watford’s 400,000 sq ft retail in leasing terms, lettings are still taking place and there is still and leisure extension, which has been a challenge to let, but has tenant demand, but high occupational costs mean that rents now gained momentum for new lettings, with the likes of Uniqlo are not as robust as they have been. and Hollister on site fitting out. Conversely, The Beacon extension in Eastbourne has faced serious difficulties, with Legal & General Outside of the large centres such as Norwich, Cambridge and having to offer significant incentives to prospective retailers, Chelmsford, and smaller market towns, the market in East Anglia and even then, interest is not guaranteed. This perhaps is tough. Rents in Ipswich and Southend have fallen by double is indicative of the polarisation between London suburban digits, whereas the market towns including Bury St Edmunds, locations and smaller centres in the region. Saffron Walden and St Neots have shown only slight decreases or remained stable.

The South East will be hit hard by the Debenhams CVA, with OUTLOOK THE SOUTH EAST WILL BE HIT more than 10 stores closing in the region. Uncertainty surrounding It isn’t all bad news though – there are still many retailers active the re-letting of these stores, and likely repurposing of these assets in the market. The likes of Skechers, Rituals, Uniqlo, H&M, Lidl, HARD BY THE DEBENHAMS CVA, away from retail, alongside ample available space already, has Aldi, and Oliver Bonas are acquiring sites. They simply have more allowed retailers to push for lower rents, longer rent free periods, power now than they had in the past and are able to dictate “ higher capital contributions, more flexible lease terms and an much more favourable and flexible terms. WITH MORE THAN 10 STORES increasing presence of turnover rents – even on High Street units. CLOSING IN THE REGION. However, these former Debenhams, Arcadia and Marks & This goes against what has historically been said about the Spencer closures suggest there will be more unoccupied retail South East and Outer London as affluent and resilient to wider space to come, which will need a proactive and open minded trends. Large and medium sized centres are close to each other, approach by landlords. which has caused problems with cannibalisation, and is prompting more retailers to re-adjust and streamline their portfolios. However, these centres still draw footfall, as they are able to offer what small to medium sized centres largely cannot, which is free car-parking. These centres are still leading the way for drawing ” shoppers in for their broad retail and leisure offer – intu Lakeside is a perfect example of this.

It is worth noting the longer-term impact that developments have had in Bracknell and Oxford. Both of these centres impacted rents in the towns, but in very different ways. Rents in Oxford have fallen by more than 10%, whereas Bracknell has repositioned itself as a completely different retail pitch to what it was before, and is a fundamentally different town centre, with a much higher rental tone. On the other hand, Westgate added to an already existing oversupply of retail space in Oxford.

IT ISN’T ALL BAD NEWS PRIME RENTS KEY TAKEAWAYS

THOUGH – THERE ARE STILL ● Last year, the UK average rent decrease (including ● CVAs such as Debenhams will create uncertainty “ London) fell 7%, whereas the South East fell by 8%, about the future of its spaces. MANY RETAILERS ACTIVE East Anglia 7% and Outer London close to 9%. ● Repurposing of CVA assets away from retail, alongside IN THE MARKET. ● In the last 12 months we have seen these rents drop ample available space, is allowing retailers to push for lower in all locations across the South East, Outer London rents, longer rent free periods, high capital contributions, and East Anglia apart from Streatham. more flexible lease terms and an increasing presence of turnover rents. ● Rents in Ipswich and Southend have fallen by double digits, however the market towns including Bury St Edmunds, Saffron Walden and St Neots have shown slight decreases or remained stable.

” ● Rents in Oxford have fallen by more than 10%.

● High occupational costs mean that rents are not as robust as they have been.

REPLACING RETAIL Retail repurposing has begun in many of the towns and cities throughout the region as landlord’s come to terms with the hard truth that for some assets there is no viable retail future.

However, with the gym market still buoyant and potential These pressures have been felt heavily in Wales and the decline for further residential, student and hotel accommodation, of 12.9% represents the highest out of any region in the UK HAL CLARKE this should be viewed more as an opportunity than a problem. that we tracked in the last 12 months. Looking ahead to 2020, it is essential that landlords are open Associate Director, minded to alternative uses if they are to extract value from The retail warehousing market depicts a slightly more mixed UK Retail Agency their assets. picture. The top retail parks in the region are still popular with occupiers and have been able to maintain rental levels in many Unlike in 2018, the dominant centres in the region have not instances. However, at the other end of the spectrum, the gap been immune to the trends impacting the sector and Cardiff, is widening and parks that have struggled to maintain occupancy Bath, Bristol, Exeter and Cheltenham have all recorded rental levels historically have poor prospects and may need to be decline in the last 12 months. Due to the spate of CVAs and repurposed sooner rather than later. administrations, occupancy levels have been placed severely under pressure and the simple supply versus demand balance has resulted in rents falling across the region.

LOOKING AHEAD TO 2020, PRIME RENTS KEY TAKEAWAYS

IT IS ESSENTIAL THAT ● 6.9% decline in prime rents in the South West. ● 70% of towns across the South West and Wales have a vacancy rate of between 10 – 20%. “ ● LANDLORDS ARE OPEN 12.9% decline in prime rent in Wales. ● Retail repurposing of medium size units and department MINDED TO ALTERNATIVE ● Only one location recorded rental growth throughout stores is essential to redress the balance and oversupply USES IF THEY ARE TO EXTRACT both regions. of retail accommodation across the region. ● With the political and economic outlook remaining VALUE FROM THEIR ASSETS. uncertain and perhaps more importantly, business rate DEVELOPMENT policy looking unlikely to change significantly in the short term, the rental decline and increased vacancy experienced ● Very little development has commenced in 2019 which in the region looks almost inevitably set to continue in 2020. provides an indication of the cautiousness landlords and developers have for the sector at present.

● Work continues on the 100,000 sq ft leisure extension to Drake Circus in Plymouth which is set to open ” in Autumn 2019.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > MIDLANDS

AFTER THE WATERSHED The Midlands retail trajectory continues to reflect the market sentiment across the country, with trends towards increased vacancy, falling rents and the process of reimagining shopping destinations.

Across the East and West of the region, the rental decline averaged It was with much fanfare that the world’s largest Primark at 5.6% and 7.4% respectively. However, this simple data is a opened in Birmingham in April 2019, concluding a comprehensive DAVID FOX small part of a much wider and pronounced period of change. three-year redevelopment of the former Pavillions shopping centre. This is very much part of Birmingham City Centre’s Co-head of UK Retail Agency 2018 was a watershed year in terms of the sheer volume of transformational regeneration, as infrastructure schemes corporate restructuring and failure; a combination that has had such as HS2 compliment major privately funded office and a domino effect into 2019 and brought changes to the retail residential developments. industry which is currently under even greater scrutiny than the immediate aftermath of the 2008 crash. This contrasts with the proposed closure of the Debenhams in Wolverhampton’s Mander Centre, a store which opened A comparison between two recent events perhaps exemplifies in October 2017, following a refurbishment of the centre. the situation and brings into focus the differing criteria that Debenhams’ creditors voted through a controversial CVA in can lead to success or long-term decline. May that saw Wolverhampton grouped at the bottom of the store portfolio, a position of apparent no return. The store may yet have a reprieve as the council and landlord intervene to reposition through a potential downsize, however the comparative measures are glaring.

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Birmingham is a city undergoing a multi billion pound investment OUTLOOK OVER THE COMING YEARS, programme, compared to Wolverhampton with its rising vacancies, There are now instances in the Midlands and across the UK falling footfall, an acute oversupply of retail stock and competition where former shopping centres have ceased to be profitable PLACES THAT WERE ONCE from other retail centres and destinations. This is a picture we assets as the costs of running them out strips the rental income have seen repeated across the region, be it the announcement – in the growing number of these situations redevelopment for “ of store closures by M&S in towns such as Northampton and alternative uses has become the accepted strategy. Over the FOR THE SOLE PURPOSE Sutton Coldfield, or the shelving of the proposed Friarsgate coming years, places that were once for the sole purpose shopping centre in Lichfield, as falling consumer and retailer of shopping and leisure will be represented as places to work OF SHOPPING AND LEISURE demand impacts on viability. WILL BE REPRESENTED AS and live, with schools and health hubs also being proposed. 2018 can be viewed as the year that the various stakeholders However, it should not be assumed that shopping as a day-to-day in town centres finally woke up to the scale of the challenge, leisure activity is a thing of the past. Across the region dominant PLACES TO WORK AND LIVE. with councils in particular looking to safeguard the future of shopping centres in Nottingham, Leicester, Derby and Birmingham once thriving town centres from falling into terminal decline. continue to thrive, albeit with adjusted business plans to reflect changes in spending and occupational costs for retailers who seek These interventions include direct investment in shopping centres to balance their bricks and mortar estate with online spending. to implement redevelopment through regeneration and bid teams, or the renegotiation of the gearing in head leases to relieve the It is in the peripheral destinations where 2018 has seen the burden of punitive head rents that have not adjusted to the wider greatest impact and proposals developing for change, as the reduction in rental income and rising void costs. shops of the past become the hotels, offices and even public ” realm of the future.

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HOWEVER IT SHOULD NOT PRIME RENTS KEY TAKEAWAYS

BE ASSUMED THAT SHOPPING ● Across the East and West of the region, the rental ● Councils are now doing more to safeguard the future “ decline averaged at 5.6% and 7.4% respectively. of once thriving town centres. AS A DAY-TO-DAY LEISURE ● This simple data is a small part of a much wider ● These interventions include direct investment in shopping ACTIVITY IS A THING OF and pronounced period of change. centres to implement redevelopment or the renegotiation THE PAST. of head leases. ”

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > NORTH WEST

STRUCTURAL CHANGE Last year saw a slowing of pace across the region’s retail market, with accelerated rental decline. The North West witnessed a -7.8% drop in rents over the last 12 months, which is a further decline on the previous year at 1.5%.

Christmas 2018 generated very mixed retailer results. There Retailers are still taking space, but new acquisitions are focused were still some very strong performers and success stories on the major centres. It is great to see new flagship openings LLOYD ENTWISTLE on the High Street. The reality is, however, that there are fewer such as Uniqlo taking the BHS store on Market St Manchester. new requirements and with the continued political uncertainty The raft of failures and dump of space in the market has Director, it’s easier for businesses not to make decisions. This is having undoubtedly been reflected in achievable terms. Agency and Development a negative effect on values as retailers drive a harder bargain on both new acquisitions and renewals. OUTLOOK While there are a variety of pressures on retailers which Prime locations in big centres are now being affected as supply continue to squeeze profit margins, the continued structural increases. Rents in the region’s premier shopping centre, The change in the retail market place is the driving force creating Trafford Centre, remained flat against its reported growth in the a significant imbalance of supply and demand. previous year. There are signs of a drop from the previous prime tones in Manchester and Liverpool, and secondary centres across the region have witnessed double digit drops in rent in areas including Bolton, Blackpool and Oldham.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > NORTH WEST

There is just too much space in many towns around the country THE WAVE OF DEPARTMENT and we are seeing more of it come back to landlords. The major cities and schemes as we have seen over the last few years PRIME RENTS will continue to be the winners. Pockets in affluent and attractive STORE FAILURES IS ● 2018 saw a further slowing of pace across the region’s market towns, like Wilmslow and Skipton will also have continued retail market, with further rental decline. “ demand from the retailers who are trading well and making SYMPTOMATIC OF A TYPE money, but even in the very best markets we are dealing with ● The North West witnessed a -7.8% drop in rents over OF RETAILING COMING vacant retail space which will inevitably not be re-let as retail. the last 12 months, which is a further decline on the previous year at 1.5%. The wave of department store failures is symptomatic of a TO AN END. type of retailing coming to an end. Some of these buildings are upwards of 200,000 sq ft and the retail occupiers to take the space simply do not exist. We are working on sites across the KEY TAKEAWAYS region to find alternative uses and re-develop what is now redundant retail space into hotels, office, residential and retirement ● We have been receiving more offers including an element living. The North West needs to re-think Retail and find a solution of turnover and this is something that, now, even high to move forward and re-generate its failing town centres. street landlords must consider. ” ● We are working on sites across the region to find alternative uses for redundant retail space left by department stores such as hotels, office, residential and retirement living.

HARD YARDS Last year was subject to a substantial number of administrations from high-profile retailers which has further affected the retail property market in the North.

No sector of the retail market has been immune from these Landlords have to mostly rely on finding new entrants to fill closures – not even food retail – previously seen to be a solid vacant property. Only the right brands choosing the right spaces TOM CULLEN investment. These have left a series of vacant units throughout are thriving at the moment – for example The Ivy have opened the North. Perhaps the most notable of all is that of UK department in the last 12 months in Victoria Gate shopping centre – and Director, stores such as Debenhams, House of Fraser and BHS, who’ve continues to attract high footfall. Retail Agency – North left considerable gaps on High Streets and shopping centres that can be more difficult to lease. There are other sectors where activity is making pace. For the last few years, Co-op has been almost unchallenged in the convenience There are glimmers of hope, however, with new entrants to the retail space other than in the most sought after of pitches. market in some Northern centres. Fashion brands from Europe However, further to the end of the proposed Sainsbury’s-Asda and London – Ecco and ME+EM are looking for stores in town merger, Sainsbury’s have started to ramp up their convenience centres in the North – but their requirements are very specific store acquisition programme once more. and the terms must be right. Matalan is soon opening their first city centre units in the North on Headrow, Leeds.

Back on the High Street there continues to be a significant THE NEXT STEP IN THE REGION amount of pressure to push rents down. The next step in the region has to be looking at reclaiming former retail units KEY TAKEAWAYS for other uses. Councils are already starting to step in some HAS TO BE LOOKING AT ● Given the amount of proposed new housing developments struggling town centres to take control of retail assets to ensure across the North and relatively few possible convenience “ that they are filled with a wider mix of uses such as community RECLAIMING FORMER RETAIL store brands – we are hoping for a significant number occupiers. This will hopefully start to make an impact on the of new store openings over the next 12-18 months number of vacant stores in these struggling towns. We feel as a result. UNITS FOR OTHER USES. that this is something that needs to start to happen sooner rather than later. ● Landlords can no longer count on the A3 restaurant market which continues to slow down dramatically in all but the DEVELOPMENT most desirable pitches both in and out-of-town. ● Councils taking responsibility for town centres and helping ● There has been limited development activity in the both land owners and occupiers make the properties North over the past 12 months. financially viable. This could well mean re-classing some of the former outlying retail pitches as residential, ” ● The opening of The Springs retail park, East Leeds or relocating council services to these pitches. is a notable scheme, with occupiers such as JD, Mountain Warehouse, M&S, Boots, Fatface and Odeon Luxe Cinema.

● The 600,000 sq ft Axiom shopping centre, West Yorkshire, has secured pre-lets such as Primark, Boots, Next and Marks & Spencer. It is due to open in 2021.

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BIG CITIES FARING BETTER Scotland’s dominant centres in Glasgow, Edinburgh and to a lesser extent, Aberdeen, continue to benefit from good levels of demand and relatively low levels of vacancy.

However, beyond these core markets there is an ongoing Also, at Redevco’s boutique Princes Square shopping centre, downward pressure on rents due to subdued demand for more we have seen a UK debut for Kate Spade, complementing the ROSS WILKIE secondary locations. This has been exacerbated by the latest recent arrivals of both Everyman Cinema and Eden Mill. CVAs from New Look, Carpetright, Debenhams, Paperchase, Director, Mothercare and most recently, Arcadia and Monsoon. EDINBURGH Retail Agency – Scotland The redevelopment of The St. James Quarter continues to GLASGOW dominate the retail landscape in Edinburgh. This impressive Scotland’s leading retail centre, Glasgow has seen a number development will create 1.7m sq ft of retail, leisure, hotel and of leading brands opening or committing to new sites including residential space and on completion in late 2020, is expected Schuh, Victoria’s Secret, Jo Malone, Penhaligons, The Ivy, to elevate Edinburgh from its current ranking of the UK’s Belstaff and Fred Perry, to name a few. 13th best retail centre to 8th. Leasing is beginning to gather momentum in light of the Inditex brands committing to pre-lets, At the southern end of the city, construction has commenced these include Zara (37,000 sq ft) with sister brands Bershka at Blackstone’s St. Enoch Centre with a new VUE Cinema and (9,300 sq ft), Stradivarius (6,000 sq ft) and Pull & Bear eight restaurants with openings scheduled for late Summer (8,000 sq ft) for what will be their only Scottish stores. 2020. Operators under offer to date include Cosmo, Nandos and Smashburger.

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This is in addition to operators already committed including LEISURE THE MARKET HAS COOLED IN W Hotel, Next, Boots, Everyman and Roomzz. Whilst Zone A The market has cooled in the restaurant sector, with only a handful rates have remained relatively stable on Princes Street and of national operators still active, such as Nandos and Cosmo, THE RESTAURANT SECTOR, WITH George Street during 2018, undoubtedly the St. James effect with increased activity from local operators. With a continued will take effect imminently. As a consequence, it is anticipated softening in the market conditions, gym operators such as “ there will be a downward pressure on Zone A rates across the The Gym, Pure Gym and JD Gyms are increasingly in demand. ONLY A HANDFUL OF NATIONAL city and the prime pitch on Princes Street will shift eastwards OPERATORS STILL ACTIVE, with the western end having to reinvent itself in light of the RETAIL WAREHOUSING imminent St. James opening. Indeed this has already started This market has held up relatively well compared to High Streets with Diageo’s plans to convert the House of Fraser on Princes and shopping centres. SUCH AS NANDOS AND COSMO. Street to a Johnnie Walker whisky experience centre. Notable deals in the city over the last 12 months include Max Mara, Active players in this arena are Lidl, Aldi, Food Warehouse, Mint Velvet, Oliver Bonas, Helly Hansen and Timberland with B&M, Home Bargains, etc. Another recent addition has been Seasalt rumoured to be under offer on George Street for their the introduction of drive-thru coffee operators Costa, Tim Hortons Scottish debut. and Starbucks to retail parks where their presence has made a significant addition to footfall and dwell-time thereby generating ABERDEEN a cross benefit across the park. Activity in Aberdeen has been more subdued with Union Square ” continuing to be the dominant retail and leisure destination. Ediston Properties has commenced work on the new New arrivals have included Brewdog, Homesense, Skechers 120,000 sq ft retail park at south Glasgow, where many and Mozza. The landlord of Bon Accord/St. Nicholas Centre of the above retailers have committed to pre-lets ahead still has plans to introduce a cinema and additional restaurant of a programmed 2020 opening. offer but given current leisure market conditions looks unlikely at present. Other deals concluded within the same ownership include Deichmann, Jack Wills and Bon Marche. Despite this we have seen rents drop back but only marginally in the Granite City.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > SCOTLAND

ANOTHER RECENT ADDITION PRIME RENTS KEY TAKEAWAYS

HAS BEEN THE INTRODUCTION ● Prime rents are down -9.81%. ● The St. James Quarter development will boost Edinburgh from its current ranking of the UK’s 13th best retail centre “ ● OF DRIVE-THRU COFFEE Glasgow’s prime pitch, Buchanan Street, has seen Zone A to 8th but as a consequence there will be a downward rates peak at £325 psf, reflecting strong rental growth pressure on Zone A rates elsewhere in the city, most OPERATORS COSTA, TIM during the last few years. notably on Princes Street. HORTONS AND STARBUCKS ● Whilst Zone A rates have remained relatively stable on ● Glasgow has seen a number of leading brands opening Princes Street and George Street during 2018, undoubtedly or committing to new sites. TO RETAIL PARKS... the St. James effect will take effect imminently. ● Retail warehousing has held up relatively well compared ” to High Streets and shopping centres.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > NORTHERN IRELAND

REGENERATION BOOSTS MARKET Belfast City Centre is standing up remarkably well against the challenges prevalent across the UK retail sector, however, market conditions in Northern Ireland are difficult outside of the largest schemes.

Dominant schemes such as Abbey Centre, Forestside, Foyleside Following the fire which destroyed Primark Castle Court, and Rushmere continue to manage vacancy levels in an effective it witnessed a noticeable decline in footfall and only recently DECLAN LEONARD manner. Elsewhere, the landlords of most secondary centres has this returned. Vila, DV8 and Matalan were new entrants are entwined in a frantic jostle to maintain occupancy levels for the scheme in 2018. Belfast is noticing growing interest from Senior Surveyor, with a number of schemes competing for a finite number of Republic of Ireland retailers. An example of this is the opening Retail Belfast retailers. The out-of-town market continues to be supported of Guineys department store in Castle Place. by retailers such as Home Bargains, Lidl, B&M etc and remains an undervalued sector which is proving resilient. The explosion in chain F&B operators across Great Britain never expanded as far as Northern Ireland, and, as a consequence, For various positive reasons, Belfast City Centre is certainly a the region has remained largely untouched by the number retail location to monitor. There are a number of major regeneration of high-profile restaurants CVAs. We are, however, noticing projects which are at different stages of development and will a steady and considered acquisition strategy from the likes have an enormously beneficial impact on consumer spending. of Nando’s and TGI’s, who have both just announced new Today, matters are less straight forward. Belfast’s Victoria Square restaurants for The Junction, and Antrim. The demand from has orchestrated a number of relocations and new entrants these national brands is being supported by good quality Irish include: Mac, Inglot, Van’s etc. Although Tommy Hilfiger has based operators including Boojum, Bob & Bert’s, Chopped upsized, the overall vacancy levels for the centre have increased. and Moe’s Grill.

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > NORTHERN IRELAND

Active leisure demand from big box operators such as We Are THE RESTAURANT POD Vertigo, Air-tastic and Captain Greens Adventure Golf is strong. This is supported by Belfast City Council releasing new plans DEVELOPMENT for Giant’s Park, a 250-acre site located 1 mile north of Belfast AND DRIVE-THRU REMAINS ● The new 750,000 sq ft Ulster University City Centre City Centre. Giant’s Park will be entirely leisure focused with Campus will open in 2021, and, on completion, will “ a huge range of integrated indoor and outdoor activities delivered DOMINATED BY THE LIKES facilitate over 17,500 staff and students. via the masterplan alongside a theme park, bike trails and outdoor venues. OF MCDONALDS, TIM HORTONS ● Ulster University City Campus together with Tribeca Belfast and Belfast Waterside have the physical capacity AND COSTA. The restaurant pod and drive-thru remains dominated by the to bring over 3m sq ft of mixed use (office and residential) likes of McDonalds, Tim Hortons and Costa. Tim Hortons recently to the city centre. opened their first Northern Ireland drive-thru at Connswater retail park, with more in the pipeline. ● Subject to Belfast City Council supporting the delivery of these projects then the outlook from Colliers is very positive The out-of-town market remains buoyant with take up coming for retailing in Belfast City Centre from 2021 onwards. in the form of Home Bargains, Iceland Food Warehouse, Lidl, B&M Bargains and Poundstretcher. These occupiers are demonstrating an appetite to purchase freeholds most notably ” with Home Bargains recent purchase of the Homebase box in KEY TAKEAWAYS Longwood retail park and the acquiring of Castlereagh retail park. ● Within the Northern Ireland F&B sector, health warnings still exist and with the potential rise in the cost of imported PRIME RENTS food, analysts are suggesting there are a number of leveraged operators who will face significant ● As a consequence of a number of factors, including challenges. a slight decline in footfall, Belfast’s prime pitch, Donegall Place, has seen Zone A rates ease back to £145 psf, a small fall from the 2017 level (£150 psf).

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > REPORT CONTACTS If you want more information about the content of this report, here’s who to speak to...

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < > REPORT CONTACTS

MARKETS STRATEGY AND RESEARCH

Dan Simms Paul Souber Lloyd Entwistle Hal Clarke Matthew Thompson Head of Retail Strategy Co-head of UK Retail Agency Head of London Retail Agency Director, Agency and Associate Director, +44 20 7344 6869 +44 20 7344 6870 Development UK Retail Agency +44 20 7344 6817 [email protected] [email protected] +44 20 7344 6812 +44 207 344 6920 [email protected] [email protected] [email protected] David Fox Tom Edson Mark Charlton Co-head of UK Retail Agency Director, Head of Ross Wilkie Jessica Short Head of Research and Forecasting +44 20 7344 6834 Out-of-Town Investment Director Senior Surveyor, +44 20 7487 1720 [email protected] +44 20 7344 6554 +44 141 226 1075 UK Retail Agency [email protected] [email protected] [email protected] +44 20 7344 6564 James Watson [email protected] Vejuna Zalalyte Director, Head of Retail Tom Cullen Sasha Riddle Senior GIS Analyst Capital Markets Director Associate Director, Declan Leonard +44 20 7487 1679 +44 20 7344 6877 +44 113 200 1853 London Retail Agency Senior Surveyor [email protected] [email protected] [email protected] +44 20 7487 1607 +44 28 908 21125 [email protected] [email protected]

IS THIS THE END OF EXECUTIVE RETAIL SHOPPING WITH REGIONAL THE MARKET MONEY THE GOLDEN AGE OF KNOWLEDGE FOOD CONTACTS SUMMARY REIMAGINED A CONSCIENCE UPDATES ONLINE RETAILING? < >