Investment in shopping centres set for ‘underperformance’
0Council shopping centre investments are set to see a 10% drop in capital value, according to new analysis of the sector.
A report by economic research firm Capital Economics said that increasing vacancy rates suggest that shopping centres are hardest hit by the current retail downturn.
The researchers cited figures showing the value of shopping centres bought and sold in the year to May was at its lowest level since 2010.
The report said “the weight of evidence points to shopping centres facing rising vacancy and rising management costs, and there is nothing on the horizon to suggest that this is about to change.
“It is, therefore, hard to avoid the conclusion that shopping centre yields are too low relative to the rest of the retail market and that a period of shopping centre underperformance is now due.”
Last month, Room151 reported that plans for a £300m investment by Cheshire West and Chester Council in the Northgate shopping centre in Chester had been hit by troubles at chain store House of Fraser.
Citing figures from the Local Data Company (LDC), Capital Economics said that high street vacancy rates were essentially static in the second half of last year at around 11%, while vacancy rates in retail parks fell below 5%.
However, the volume of vacant shopping centre space rose to 13.2%, reversing the falls seen over the previous 18 to 24 months.
Shopping centres now have higher short- and long-term vacancy rates than high street shops or retail parks, implying that “they are being hit harder by the structural forces battering the retail sector at present,” the report said.
It added that the larger and diverse occupier base of shopping centres has left them more vulnerable to short-term tenant churn than other types of property.
“And in the current hostile environment, centre managements appear to be finding it comparatively hard to re-let empty units,” it added.
Retaining tenants and shoppers will require increased spending on facilities and higher levels of more intensive management, eating into income returns, the report said.
Last month, the Centre for Cities, a think tank, released a report concluding that struggling town centres have twice as much shop space compare to offices, while successful locations have three times as much office space than retail.
Responding to the report, John Kelly, director of client investments at fund manager CCLA, said that council investments in town centre retail could be prove to be vital, so long as regeneration, rather than revenue-generation, was the aim.
