Retail
Following a prolonged period of weak performance and rental decline, we have seen a bottoming out of rents from April 2021.
The retail market experienced a significant decline to its lowest point during the pandemic. Despite the impacts of the pandemic subsiding, we have not seen a resurgence in the market. We are therefore forecasting liability reductions across the retail sector primarily driven by a lower UBR.
RETAIL DATA
RETAIL LIABILITY PER REGION
ONLINE SHOPPING STATS
RETAIL
During the 2017 rating list, the retail market experienced significant rental decline caused by underlying structural changes and increased pressures, particularly from the growth of online shopping.
This has led to a fundamental rebasing of rents in many locations. Many of the large retailers have now rationalised their portfolios and rents have stabilised. Where retail multiples have moved out of retail pitches, there has been take up from small independent and regional retailers taking advantage of lower rents in strong retail locations and backfilling units. This has also been supported by lower business rates liabilities (following the fall in rental values in April 2021), retail reliefs and the removal of downwards transition so that retailers have benefitted from lower rateable values from the very beginning of the 2023 rating list.
Since 2015, traditional retail has been significantly impacted by the growth in online sales. During the height of the Covid-19 pandemic, this had nearly reached 35% of total retail sales. Although levels remain above pre-Covid levels, they appear to have stabilised at 25-28%, depending on the time of the year.
Although occupier demand has remained weak, repurposing of retail units since 2021 has improved occupancy rates in some locations.
This is especially key in fashion-led shopping centres, which have been plagued by the decline of department stores and the retreat of many high street fashion multiples. Schemes such as the redevelopment of the former Elephant and Castle Shopping Centre in central London will be fundamental to reducing vacancy rates and ensuring the sector evolves with changes in shopping habits. However, this is a mixed picture and retail development in poorer, peripheral retail towns has generally been subdued with increased build costs and pressures on local authority funding. Indeed, as of July 2023, 63.5% of Debenhams stores remain vacant, putting downwards pressure on rents.
The retail market in London has been mixed. Demand for retail space has been strong in prime locations including Bond Street and Oxford Street. The return to office working and increase in tourist numbers has strengthened the retail market in central London pitches with five-year lease terms typically being agreed. Outer London high street locations with good connectivity into central London have also performed well. Hybrid working, which has boomed since 2021, continues to boost localised shopping trends and retailers have typically benefited from more affordable rents than in central London.
Although our research suggests that rents have bottomed out from 2021, persistent inflation and high interest rates mean consumers are spending less and supply side costs are rising. This has resulted in a continuation of rationalisation programmes and corporate bankruptcies during 2023, most recently with Paperchase and Wilko closing more than 500 stores. How retail landlords and local authorities react to this will be fundamental in determining how future rents are affected.
RETAIL WAREHOUSING
After significant drops in value in the previous revaluation, the retail warehouse sector has performed better than town centres in recent years.
Vacancy rates have dropped steadily since 2021, reversing the previous trend experienced since 2017 as corporate failings and restructuring numbers have fallen in recent years. Value-orientated operators have been growing their share in the market, with a third of all new openings in 2023 being value-led brands.
Big takers in space over the past year include supermarkets, particularly Lidl and Aldi, value retailers such as Poundland, and gym operators such as Pure Gym (who took 412,900 sq ft in 2023) and JD Gyms.
High street brands such as Lush and Mango have also recently taken retail warehouse space for the first time, demonstrating a shift in occupier mix, adding to occupational demand and driving positive rental growth in 2023. Other new brands into the retail warehouse market include Hotel Chocolat, opening 12 stores in the year to April 2024.
We therefore expect rateable values to increase marginally by 2% for retail warehousing at the 2026 revaluation, following a significant drop in the 2023 rating list.
