The retail occupational market

It is clear from the Christmas trading statements that generally retailers in the UK had a better time over this key trading period than they did in 2013-14. The average like-for-like sales growth for those who have reported to date was 6.9%, an improvement on the 4.8% reported last year.

Of course, the picture was not entirely rosy, with negative LFL sales reported by the food retailers in particular. Furthermore, while there were relatively few statements on margins, it is clear that they remained under pressure and those who over-embraced discounting around Black Friday suffered particularly hard. Indeed, given the general negativity of reporting around this US import, 2015 may well see a lot less noise about this event.

"Looking ahead to the rest of 2015 we expect this to be a significantly better year for retailers"

Looking ahead to the rest of 2015 we expect this to be a significantly better year for retailers, with real earnings growth now back in positive territory and the fall in fuel prices in particular likely to be viewed as a tax cut by the UK consumer.

While retailers will continue to run a forensic eye over their store portfolios, we expect that this year will see a net increase in store numbers, with the key battlegrounds being larger store in prime towns and pitches, as well as infill in recovering secondary markets.

We expect that this will be a year of two halves, with the first half of 2015 seeing the incentives being offered to retailers eroding, and the second half of the year actually delivering some real headline rental growth in the most sought after locations. The best locations may well not be the most obvious "prime" markets. Indeed, the higher rented towns (with Zone A rents in excess of £250/sq ft) may well show lower growth than the recently rebased markets where retailers can make a more credible story for margin improvement.

Another new trend for 2015 will the beginnings of a recovery in development activity, particularly in terms of the refurbishment and expansion of secondary malls. We expect to see new projects starting in a number of locations where the land value is sufficiently low on the owner's books to justify investment. In many case these projects will be jump started by a more mixed-use focus to combine leisure and residential with the existing retail offer.

2015 will undoubtedly be a turning point in the cycle for retailers in the UK, and while we expect to see further store rationalisation, there is demand for units that are being released by food retailers and others, and most importantly the demand will be national and not overly focused on a few prime towns and pitches in London and the South East.

Taken from
UK Shopping Centre and High Street Bulletin Q4 2014