Retail is still attractive as a commercial property asset class

Rob Lankey

November 27, 2019

Rob Lankey (pictured), commercial investment director, Shawbrook Bank

Despite recent negative headwinds, retail is still attractive as a commercial property asset class

You could be forgiven for thinking that the British high street is currently on its knees, with reports of big household names such as Mothercare and Thomas Cook going bust, and staples such as Homebase having to close hundreds of stores.

However, the latest ONS Retail Sales data surprisingly found that year-on-year growth in the volume of sales in October increased by 3.1%, with all sectors except household goods experiencing growth.

Our ‘UK Commercial Property Market Report’ compiled by the Centre for Economics and Business Research (CEBR) looks into recent trends and examines the retail sector’s attractiveness as an asset class.

Forecasts within the report find capital value growth for retail property show the near-term outlook to be challenging and despite the ONS data showing recent growth, businesses are going to have to adapt and drive change in order to stay relevant.

An example of a retail giant adapting to try and navigate the current retail climate is the recent announcement that John Lewis is set to unveil a new-look department store in Southampton, featuring ‘experience playgrounds’.

The ‘playgrounds’ have replaced selling space and have been designed so that shoppers can learn new skills such as pasta-making and learning to be a barista.

The consumer landscape is changing, and people expect not only to be able to do their shopping, but also have heightened convenience or an experience whilst doing so.

We believe retail property can continue to provide strong rental returns for landlords where the combination of tenant and property location are meeting modern consumer demand.

For investors of mixed-use space to realise the full benefits that can be had, there will have to be a level of collaboration in the property sector moving forward.

On top of the John Lewis example, another good example of mixed-use space is HMV’s recent opening of the largest entertainment store in Europe.

Based in Birmingham, the store (called HMV Vault) plans to buck recent sales trends for DVDs and CDs and make the most of their new large space.

Merging retail and logistics, the new building includes a distribution centre, as well as a music venue for live performances, a screening room for new films, and plans to open a café.

We expect retail landlords to look harder at mixing uses and bringing more services into their schemes.

In the future, we may see high streets becoming leisure and service centres, with bars, restaurants, hairdressers, dentists, doctors, and so on, instead of retail spaces.

In any case, retail landlords are having to get creative.

The challenges faced by retail won’t be solved by a shift to residential, but the trend will be a significant boost to opportunities for property owners.

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