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National vacancy rate improves

According to new research from Springboard and the British Retail Consortium, the national town centre vacancy rate in the UK was 10.9 per cent in January 2013, down from 11.3 per cent in October 2012. BRC director general Helen Dickinson said: “It’s good news that the

vacancy rate is slightly down on October 2012’s record high. However, the UK average masks widespread variations, with Wales recording a particularly high rate compared with the previous quarter. “If the government wants to support reducing the vacancy rate further,

it could really help by freezing business rates in April. The rising cost of doing business is a looming threat to the future health of retailers and high streets.” And Diane Wehrle, research director at Springboard, said: “The key finding

here is that vacancies in particular regions have increased significantly over the past three months, for example an increase from 15.1 to 17.0 per cent in Wales which may be a reflection of the impact of the recent closure of key high street names. “The premise that high vacancy rates tend to perpetuate low footfall

appears to hold true with a decline in footfall of -10.1 per cent in Wales alongside an increase in a vacancy rate of 1.9 per cent from October compared with an increase in footfall in the West Midlands of 5.3 percentage points alongside a vacancy rate that has fallen over the last three months by 0.7 per cent.”


For each store that becomes available on Bond Street or Sloane Street in London’s West End, there are around 10 international brands competing for it – an increase of around 20 per cent in the last year according to Cushman & Wakefield. Zone A rents in central Bond Street have increased from £600 to £800 per sq ft. However, rent can be up to £1,000 per sq ft in the southern section of Bond Street – this could be even higher if a landlord could secure vacant possession and offer a shop on an open market rent. And according to Peter Mace, head of central London retail at Cushman

& Wakefield, a new influx of high-spending Chinese shoppers could drive rents higher. “The appetite for British, and international, luxury brands from Chinese, Russians and other overseas consumers in London has never been higher as prices can be considerably cheaper than back home,” he said. “International retailers are acutely aware of the relentless demand from

consumers for luxury goods in the West End and are constantly vying for prime positions on London’s top shopping destinations.” A key trend for 2013 highlighted in the Cushman & Wakefield report is that leading brands will continue to seek out new space to increase the size of their stores in response to rising demand. In 2012, retailers secured an additional 35,000 sq ft of new retail space on Bond Street and Sloane Street mainly by the conversion of office space into retail. Peter Mace explained: “First floor office space on Bond Street and

Sloane Street is around £55/£60 per sq ft. Retailers are increasingly looking to expand upwards into first floor space on these streets in order to secure valuable additional trading space but at around 10 per cent of street level Zone A rents which is a ‘win-win’ solution for both landlord and tenant.” And Mace highlights watchmakers as a key sector for 2013. “Traditionally

luxury watchmakers trade through department stores, but increasingly they have started to appreciate the marketing power of having a standalone store in the right location.”


Online sales underestimated says AXA Real Estate

AXA Real Estate Investment Managers, the leading real estate manager in Europe and second globally with over €43bn of assets under man- agement, has concluded that online retailing has developed to such an extent that it now represents a substantial threat to physical store prof- itability and is likely to have significant implications on landlords’ ability to grow, and in some cases maintain, rental income. AXA believes investors are erroneously pricing in a recovery in phys- ical sales that is unlikely to occur because, it forecasts, 90 per cent of future growth in retail sales in the UK, France and Germany from 2012- 2016, or €91.5bn of the €101.2bn total, will be captured by online spend. It concludes investors have so far been unable to differentiate

between the weakening of physical sales due to the shift online from those resulting from the current recessionary environment. In fact the economic crisis is accelerating the growth in online sales as the price comparison capabilities of e-commerce are increasingly attractive to consumers with reduced disposable income. The current predictions that 25 per cent of total UK retail sales may be captured online by 2020 are understated with AXA Real Estate believing that the figure will be at least 30 per cent (equating to a projected €165bn of sales). But the UK will be spared the worst impact because of its almost non-existent development pipeline of new space. France and Spain, where development is continuing apace, will be the most adversely affected of Europe’s largest economies. The migration of spend online and competition from new space are

expected to directly impact retailers’ ability to meet current occupancy costs. To remain viable AXA Real Estate predicts property costs will need to fall by 18 per cent in Spain, 17 per cent in France, 10 per cent in Germany, 5 per cent in the UK and just 2 per cent in Poland .These are average figures for the whole market and AXA Real Estate believes that for some locations rents will be maintained, while for others, affordable rents may drop to close to zero. So what are owners of retail property to do? AXA Real Estate sug-

gests that investors favour large formats, such as shopping centres, where they are better able to control external factors and where there is flexibility to provide complementary leisure and entertainment ele- ments. These formats also allow comparison shopping and are better able to integrate multi-channel retailing. In addition they should favour physical stores occupied by luxury/ branded goods retailers and discounters, where online retailers are less able to compete on price and service. And they should focus on loca- tions that are of strategic importance for retailers, and invest in catego- ry-specific locations, those preferred as national or regional stores, or shop units in more affluent areas or those targeted by wealthy tourists which are expected to be more immune to the shift online. Concluding, Alan Patterson, global head of research and strategy

at AXA Real Estate said: “Retail is undergoing an indelible structural change, and an inflection point has now been reached where investors need to start to protect the capital held in retail real estate invest- ments.

The conclusions from this research do not mean that retail as a sec-

tor is a poor investment, but investors need to consider very carefully whether the medium–to-long term risks associated from expanding online retail sales are appropriately priced into the assets that they are buying.”

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