Underperforming retail space to be redeveloped in 2019, predicts CBRE
A ‘perfect storm’ of Brexit, business rates, inflation, the growth of e-commerce, and employee cost pressures, will continue to weigh on the minds of UK retailers in the year ahead, according to CBRE UK’s 2019 Real Estate Market Outlook.
The agent predicts the retail and hospitality landscape will polarise into ‘experience’ and ‘convenience’, with shopping centre owners likely to act to reposition their assets accordingly. Investment volumes will remain low, but pubs, leisure, and roadside retail will move increasingly into investors’ sights as these previously niche sectors become more investable.
CBRE is forecasting retail rents will fall by 1.9% in 2019, and will fall further in 2020 until growth returns with a 0.2% uplift in 2021.
Within the shopping centre asset class, those in the most convenient locations (often below 80,000 sq ft), and those who create a destination appeal for consumers to have a ‘big day out’ (usually over 600,000 sq ft) will see the most significant returns in the year ahead, continuing the divergence in performance.
The majority of the 1.28m sq ft of new shopping centre space planned to open in 2019 will be through the expansion of existing assets. Destination centres will drive this expansion but such centres will increase the proportion of space dedicated to leisure and entertainment, rather than traditional shops.
In response to evolving consumer demand, CBRE expects that owners of mid-range shopping centres, as well as some small and large centres, will increasingly choose to redevelop underperforming retail space over the next year. Some landlords are set to enter the residential market to create additional value from land around some of their assets. This will be supported by a relaxation of planning rules to allow shops to be converted into homes and offices.
Rhodri Davies, head of UK retail at CBRE said: “While some pressures for retailers will start to fall away in 2019, others including the global economy running out of steam are likely to take their place. This will force retailers to focus even more on cost efficiency and innovation. Although the sector is witnessing significant disruption both from cyclical and economic factors, retailers who innovate quickly and invest in the consumer are likely to prove resilient.”
