Whilst Brexit and the recent election have certainly had an impact on consumer behavior, household spending and retail sales continue to be strong with spending expected to rise near 4% for this year with possible decreases in 2018 and 2019 according to a recent report from Knight Frank.
The market saw slow growth in the beginning of 2017 but activity has increased and predictions are for a better 2Q result. Margins for retailers are under pressure as production costs continue to rise with 12 retailers with 770 stores now in administration in the 1Q of 2017, whereas 30 were in administration in the entire year of 2016.
British shoppers have shown in recent surveys to be less pessimistic about their own personal finance situation. When asked about the broader economy and the future they did become more negative.
For the 1Q of 2017 shopping centre commercial property transactions have amounted to £358million in seven different deals. This is a decline of 56% when compared to the same time in 2016 where the total for transactions were £810million and 58% lower than in the 1Q of 2015 where 14 transactions accounted for £845million.
One of the most recent sales was of the Stratford Shopping Centre in East London for £141.5million. Additional transactions include The Exchange in Ilford for £78million by Capital & Regional with Savills acting as advisors.
Currently there are 13 centres pending sale for an investment total of £770million which should help the 2Q results.
Knight Frank states in the report: ‘Given the extensive pipeline, after a slow start, our view on the year ahead is one of moderated optimism, and we expect total volumes for the year to reach £2.5 billion – £3 billion, so not far off the £3 billion traded in 2016.’
High Street Investment
For the 1Q of 2017 investments in high street shops outside of London fell by 28% from the same time in 2016. One of the issues confronting this sector is the lack of volume and size available for transactions. As a result, the costs for buying and selling have made the high street sector unattractive for investors.
Private investors have been accepted for 37% of the deals and 50% of the value with 18% of sales have been by UK institutions.
As the report states: ’UK institutions are definitely poised to become more active in the high street retail sector, but their aspirations have also been curtailed by the lack of larger assets in prime locations that have been marketed.’
‘The investor base in the high street shop market has definitely broadened. Private investor demand for the best of the best remains strong, and we definitely expect to see more institutional competition at this end of the market in the remainder of 2017.’