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Step change as retail landscape becomes increasingly polarised

Lauretta Roberts
22 June 2017

The gap between the best and worst retailing locations has become far more pronounced in the last year and the number of shops that have lain vacant for more than a year has increased by 20%.

According to the Midsummer Retail Report from global real estate consultancy Colliers International, overall retail rents have increased by 1.8% year on year and the overall number of prime shop vacancies is down 0.2%, which is the first nationwide improvement since 2014.

However Colliers' head of UK retail Mark Phillipson said there had been a step change in the polarisation of the market."[...] the proportion of the 420 locations we monitor which saw rents fall more than doubled, while the volume of shops that have been vacant for more than a year increased by 20%. Both these measures had been previously improving during the past two years, and this reverse signals a step-change which is widening the gulf between the best and the rest," he said.

Even in London, the market has cooled. In recent years the capital has seen double digit rent increases but this year they were down to 3% and Colliers believe they will remain flat for the coming 12 months. It estimates that on Bond Street, which is one of the world's leading retail locations, around 25 shop leases are being "quietly marketed" by brands. Bond Street was recently revealed to be the world's fourth most expensive retail location behind New York's Upper Fifth Avenue, Hong Kong's Causeway Bay and the Champs Elyées in Paris.

"London is still a phenomenally strong shopping environment but the market has cooled. The more positive news is that the capital is still creating new flourishing pitches. The shopping offer on Tottenham Court Road is being transformed and we’ve seen top rents on the street increase by 7.5% - more than double the London average," said Colliers head of central London retail agency Paul Souber.

The consultancy has also noticed a shift in the attitudes of investors buying retail assets. In the past year some of the best performing retail sites have not been shops at all but, in effect, service centres which fulfil online orders. "For the first time, these logistics assets – the ‘shops you can’t shop in’ -  are selling at prices which are keener than all but the best trophy retail assets," said Colliers head of retail capital markets James Watson.

Watson also predicts that the current shortage of retail stock is about to change as forced sales on the secondary market "may not be that far away". "This is not great news for those who are sitting on assets where the debt-value equation is heading in the wrong direction, but it will be positive for buyers who are sitting on a mountain of cash," Watson said.

Other key findings of the report include: around 85% of the stores within the M25 from collapsed retailer BHS have found new occupiers while only 30% have been filled in the rest of the country; retail leases are becoming more aligned to those in continental Europe as retailers seek to secure shorter leases; and the advent of "driverless cars" may breathe new life into town centres in the future.

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