If there is one commercial property sector that has thrown up challenges and opportunities – not to mention headlines – all at once recently, then it is retail. Once the lynchpin of many a fund, accounting for as much as 40% according to Fidelity in UK non-listed portfolios, it is now a case of investors scrutinising their asset and often withdrawing their cash.
Shopping Centre Diversification
Figures from the real estate investment data provider, MSCI, show there has been a fall in shopping centre property values of 7.9% since 2015 – meaning they’re now worth nearly £4.5bn less. Intu recently warned that it expects its rental income to drop by between 4% and 6% this year as tenants bring forward Company Voluntary Arrangements to renegotiate rents and shut stores.
A case in point would be Arcadia’s recent approval – resulting in 23 store closures and rent cuts on almost 200 stores. This is only likely to be a short term remedy though when faced with e-commerce growth and changing shopping habits.
Lower prices and lower rents make for a bleak picture for any landlord wishing to sell or let. One answer to this conundrum has been to improve the asset with a variety of choice, catering to the increasing demand for an experience-led destination.
A good example of how to keep customers coming back is Hollis client DTZ Investors’ The Printworks in Manchester, which since a refurbishment involving our environmental and M&E services has enticed a restaurant that will change its menu and décor four times a year in line with the seasons.
Those shopping centres looking to thrive amid challenging trading conditions are looking to bolster their entertainment and leisure offer – like last year’s opening of The Beacon extension to Eastbourne’s Arndale Centre where the extra 175,000 sq ft of space has been 70% filled by the likes of H&M, Fat Face, Cineworld and Nando’s.
Continually embracing online is the first step any high street or shopping centre store should be prioritising. Click & collect is set to rise by 45.8% over the next five years to £9.8 billion according to GlobalData, and Arcadia will be all too aware that clothing and footwear is by far the largest sector – accounting for 59.9% of spend in 2018.
One key finding from this research was that a total of 39.2% of customers bought an additional item when collecting their order from the store – reflecting how an online offering can compliment in-store strategies. Arcadia has previously gone one step further bringing online ordering on iPad to their stores with features such as stock visibility.
Greater engagement and interactivity online has been a trend that needs to continue with the likes of Specsavers allowing visitors to their website to upload a photo and try on glasses; Sephora likewise in the US with patented technology for lipstick.
Light at the end of the tunnel?
It is unlikely the narrative of plunging shares and store closures on the high street will let up anytime soon, with more than 23,000 shops forecast to close in 2019 according to the findings in an annual report from Altus Group – up from 20,000 last year.
A turning point could be when landlords and retailers surf the growing tide of a desire to see a renaissance of our town centres; with mixed-use residential and leisure schemes boosting footfall and helping to shape communities. Communities that are increasingly seeking out local produce and authentic brands; the proliferation of microbreweries and independent craft stores being testament to this.
Indeed, part of the reason why the likes of House of Fraser, Debenhams and some Arcadia brands such as Burton and Miss Selfridge have struggled has been due to not having a clear identity or specialism. The need to create unique, positive impressions on new and existing customers has never been greater. This can come from innovative approaches to customer service and a demonstrable commitment to environmental sustainability – a growing concern among consumers. Technology can again be of benefit here to both retailer and customer, as Gartner predicts that by 2025, 20% of the top 10 global grocers by revenue will be using blockchain for food safety and traceability to create visibility to production, quality and freshness.
Perversely, the importance of the high street is also being demonstrated by e-commerce companies who are keen on having a physical point of sale. Amazon opening a pop-up store in London last year and bookstores in the US shows the value the company places on brand awareness and engaging would-be customers with the personal touch. Clearly bricks and mortar retail will always have its advantages, and best served by those employing a multichannel strategy encouraging customers to spend in-store and online.