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This is a re-set moment for creating value in retail property

Take a moment to look at the havoc wrought in the past few weeks: Debenhams, Carluccio’s, Laura Ashley, Cath Kidston and more have all entered administration or are about to; £7.7bn has been lost in market capitalisation from the top four UK retail REITs; 66% of March’s rent was unpaid; 500,000-plus non-essential stores were banned from trading; and footfall was down 90%-plus.

The tide has gone out and left everyone exposed. The question is: can retail survive the coming months?

The evidence so far is that many companies will not. Of those that have gone under to date, a number had underlying issues, but in the coming weeks we will likely see failures of businesses that were trading well pre-lockdown.

And do not think it is a case of weathering this storm before returning to normal: in the same way that lockdown has created a ‘new normal’, so the post-Covid-19 situation will be a step change again, for ours is now a world in fast-forward.

The lockdown has accelerated many of the nascent consumer trends that were already under way; we have jumped forward five years in the space of two weeks. Now the genie is out the bottle, we will not be able to go back. Every aspect of our lives has changed and, with necessity being the mother of invention, we have seen huge upheaval matched by inspiring innovation, often driven by the smaller, more nimble operators.

That combination of consumer acceleration and economic fallout is now forcing retail property to face many of the challenges that had been repeatedly kicked down the road.

Some of these, like business rates, are political. The majority, however, are self-inflicted. Among these, the most glaring of all is how we value the store. A lease structure grounded in 1950s behaviours was already anachronistic, but now it is no longer fit for purpose.

The impact of Covid-19 has been to tighten the focus of consumers: into the local area, into what they put in their baskets and their mouths and which brands they allow into their lives.

Brands that can create that connection and immediate relevance will be the ones that survive and indeed thrive. The store remains the greatest portal to do this, and valuing it accurately should be the top of both occupiers’ and owners’ to-do lists, albeit from very different perspectives.

So how do you bring together two traditionally opposing points of views? Start by equally sharing risk and reward – the heated arguments between owner and occupier can only be resolved if both sides co-operate. This means agreeing objective, measurable terms of engagement and structuring a lease that reflects this with a larger proportion reflective of sales performance.

Two-way communication

The owner must deliver both high-quality and high-quantity footfall and prove to the occupier that it is doing so. Evidence of who the shopper is, where they come from and how they are behaving should be fully shared.

In return, the occupier must be open on customer engagement by sharing sales data – not just turnover through the till but also returns, click & collect and online sales within the catchment.

In today’s data-rich world, the insight is available, and where it is not there are third-party alternatives. CACI works with both owners and occupiers, as well as high-frequency datasets, to provide that objective, neutral space where confidential data can be shared without commercial confidences being breached. Having an objective third party applying a pre-agreed methodology allows all concerned to reach a position where the store is accurately valued and future uncertainty and risk reflected.

The new normal will be a world in fast-forward. Those that move with the consumer, co-operate, innovate and engage with one another will survive.

Those that fight the tide are destined to fail.

By Alex McCulloch

Source: Property Week

Marketing No Comments

Rise in demand for commercial property at end of 2017

NORTHERN Ireland was one of only two regions in the UK to report an increase in occupier demand for commercial property at the end of 2017 according to new industry figures.

The latest RICS (Royal Institution of Chartered Surveyors) and Ulster Bank Commercial Market Survey has revealed that occupier demand for commercial property in the north picked up in the final quarter of the year, driven by rising interest in retail and office premises.

The rent expectations indicator for retail was also positive, bucking the UK trend, whilst the outlook for office and industrial rents picked up.

On the investment side, interest from potential investors in office and retail property edged upwards after falling in the third quarter 2017, according to respondents, however the data suggests that investor enquiries for industrial premises remained flat.

Expectations for capital values strengthened across the board, owever, the survey’s indicator for foreign investor interest was negative for the seventh quarter in succession, though only marginally so, suggesting that the number of enquiries from foreign investors continues to edge lower.

RICS Northern Ireland commercial property spokesperson, Tracy Flanagan said: “It appears that overall the Northern Ireland commercial property market ended 2017 much as it had started it, with sustained levels of occupier demand and investor enquiries; albeit that demand softened in the quarters in between.”

Looking ahead the CBRE director added:

“As we move into 2018, we hope to see expectations for rents and capital values strengthen but political uncertainty remains, and how the year pans out will be influenced by what emerges from the ongoing Brexit negotiations.”

Relationship director of commercial real estate at Ulster Bank, Gary Barr said the market enters 2018 on a “relatively firm footing”.

“Surveyors are reporting rising demand from both occupiers and investors, particularly in the office sector. This suggests that the market has picked up following a lull in the mid part of the year, and that it enters 2018 on a relatively firm footing, albeit that there are challenges ahead. At Ulster Bank, we continue to support a wide range of property deals and see firm demand from investors in quality assets.”

Source: Irish News