Death of the high street spells doom for retail property


than one in ten shops in Britain now stand empty. And the situation, the worst it has been in recent years, is unlikely to get better. Gone are the days when consumers spent like lottery winners, and investors could see any high street shop with a good covenant (and upwards-only rent reviews) as the ultimate high return, low risk investment.

Critically, this is not just a cyclical downturn and isn’t solely affecting poor performing retailers. Online competition is fundamentally changing how consumers spend, and retailers have been forced to question their store portfolio strategies, even when the broader company is doing well.

The effect on the high street has been stark. The most vulnerable retailers have had their hands forced into withdrawing from the market. But the most prescient of the strong are rightly making tough decisions about where they can realistically support stores. It’s a seismic shift.

Analysis by CACI shows that the prospects for 2,750 of the UK’s 4,000 shopping locations (including high streets, out-of-town centres and large malls) are so poor that they may struggle to survive as viable locations for retailers selling non-food items beyond 2015.

Greater London, which has a total of 446 shopping locations, will not be immune to this trend. We categorise it as having 149 “E” and 134 “D” class centres – those that are likely to see decreasing numbers of interested retailers. Consumers are staying away, and soon these centres will only be able to support convenience or value stores. High streets in Acton, West Ealing and Streatham will find it difficult to survive the next two years.

But at the other end of the spectrum, there’s intense competition for space in the most successful centres. These make up 3 per cent of all locations, but account for 28 per cent of all spending. While much old retail space is destined for alternative use, many shopping centres are still finding favour with consumers (reflecting the fact that shoppers are not solely moving online). The difficulty is that there are only 116 of these vibrant locations across the country, with Westfield in Stratford and the King’s Road in Chelsea as prime London examples.

The choice for retailers is clear. But investors should also have long-term concerns about their retail property assets. Gone are the days when retail property anywhere in the UK could be considered the ultimate hedge against inflation, and as safe as gilts. Outside the premium locations, retailers may no longer be interested.

No number of government initiatives or task forces will be able to reverse these underlying trends. Retailers now face the unenviable task of restructuring their high street portfolios. Equally, asset managers with investments in retail property must begin to assure their clients that their investments have a long-term future, based on the strength of local consumers.

Retailers can survive. But this is a fundamental trend, not a momentary downturn. Much will depend on their willingness to grapple with its full implications.

Paul Langston is a consulting partner at CACI Location Planning.