The retail property market has faced some significant challenges over recent years, but with the economy improving and consumers more prepared to spend, it seems that 2015 could mark a turnaround for both the retail sector and its property market.
According to the global property consultancy Knight Frank, retail sales are expected to further pick up in the coming year due to a combination of lower inflation, an increasingly buoyant labour market and a drop in oil prices leading to cheaper fuel costs for consumers.
However, the sector will continue to face some difficulties caused by structural changes – bricks and mortar based retailers, for example, will have to continue to adapt to the growing trend for online retailing in order to prevent their profit margins becoming squeezed.
Knight Frank predicts that shopping centres will continue to enjoy a similar level of popularity with investors as was seen in 2014, with all sub-sectors of the UK’s market expected to benefit from this.
UK retail developments of this kind will continue to attract a higher level of investment than their counterparts in Continental Europe, partly due to the continuing issues facing countries in the Eurozone.
Yet while this factor is forecast to raise in-town rental growth, dependent upon the location and/or town in question, Knight Frank also believes that larger schemes in prime locations such as London, Birmingham and Glasgow will continue to outperform the wider market.
In addition, the number of transactions for larger schemes is expected to fall steadily, as owners seek to consolidate and re-balance their portfolios in order to achieve a higher profit from prime stock.
On the high street, the strongest message for retailers is that investing in technology is vital given the current consumer preference for omni channel retailing. Initiatives such as click and collect, therefore, will continue to grow in popularity over the year, especially in major regional city centres such as Liverpool, Leeds and Edinburgh where good units will be in strong demand due to their relatively good value when compared to stock from other sectors.
Moving out of town, Knight Frank predicts that footfall will continue to grow in retail and leisure developments, especially those anchored by a cinema. However, this may come at the expense of town centres, especially if the offering is weaker.
Finally, Knight Frank addresses the issue of food stores, predicting that members of the big four will continue to face high levels of pressure from discounters such as Aldi and Lidl. As a result, large store openings are likely to plummet sharply in favour of expansion of convenience networks, which will prove particularly profitable in the South East of the country.
