The past 18 months have seen a raft of retailers hitting the headlines, with administrations, profit warnings, store closures and CVAs dominating the sector’s outlook. The impact is being felt most in shopping centres and department stores, although high streets and retail warehouses are not immune.
Retail sales are positive; however, the historic relationship between retail sales and retail rental growth has faltered. Online penetration, particularly for non-food items, as well as rising business rates and labour costs, are all factors.
The key to preserving value within retail is stock selection and asset management. We have no exposure to shopping centres or department stores, which are witnessing a severe fall in value. Whilst across the house we have exposure to the high street, these assets are located in centres with strong underlying fundamentals, which could help provide an effect defence to the growing presence of online shopping. We also hold a limited number of retail warehouses, which have historically outperformed town centres, although more recently the sub-sector has also suffered from the structural issues facing retailers. The sub-sector continues to face challenges, including tenants’ increasing preference for smaller store sizes, rendering many older large-format stores obsolete. However, retail warehousing can play a role in the multi-channel offer, offering locations for click and collect and showrooms, or their use can be expanded to include food & beverage, health and leisure facilities to widen the pool of potential occupiers.