Retail rents to drop by a fifth

Published 21st Jun 2009

Rents across the UK’s high streets and shopping centres are set to drop by almost a fifth between now and the end of next year, quashing hopes of a revival of the troubled retail property sector, an influential property report has forecast.

As struggling retailers demand cheaper deals from landlords desperate to keep properties occupied during the recession, rents are forecast to have dropped by about 11 per cent by the end of the year, according to the annual midsummer report on retail property from property consultancy Colliers CRE.

Some landlords are resorting to offering rent-free occupation for up to six years in a bid to attract tenants.

Colliers said overall average rental values are expected to fall by 9 per cent in 2010 and 1.3 per cent in 2011, only returning to growth in 2012. That will put extra pressure on retail property owners already struggling with a slump that has wiped out almost half the value of their assets.

In total, about £12bn is expected to be knocked off capital values this year, taking the decline to £45bn since the turn of the market in 2007, although there are signs of stability in the prices for the best properties. Colliers forecasts that the sector will be valued at about £48bn by the end of 2009, down from £93bn at the end of 2006.

Retailers that are still expanding – and Colliers identifies at least 60 with requirements for new shops – are demanding lower rents and large concessions, such as many years with no rent on long leases. Colliers measures net effective rental values that include such rent-free periods and capital contributions. It says this is the first drop in prime rents since the recession of the early 1990s on the high street.

The forecast will make hard reading for the many owners of retail property in the UK, which includes largest listed companies such as Land Securities, British Land, Hammerson and Liberty International. Landlords have already had to write down billions of pounds from the value of their retail assets.

Colliers’ report into the sector comes as retail sales fell more than expected in May, by 0.6 per cent according to the Office of National Statistics on Thursday, as shoppers cut back on spending.

There have been similarly weak figures from the British Retail Consortium, showing the green shoots many had seen in retail sales have proved fragile.

Source: ' FT '

View All Latest Articles