A unique opportunity at an exciting time in the market
Retail Real Estate Outlook
The number of retail openings has fallen every year since 2015 and almost a thousand shops have closed over the past two years as a direct result of retailers using company voluntary arrangements (CVAs). The structural societal and technological changes underpinning such decline is likely to accelerate. The burden of business rates and high rents has further impacted the ongoing viability of many retail operations. Based on this trend, Deloitte predicts that between 2018 and 2020 UK retail will see 27,000 net store closures. We therefore expect to see more obsolescent and empty retail centres, distressed sale and debt, together with corporate insolvencies and restructuring.
Retail real estate is historically an attractive investment class due to its superior returns, long-term stability and income growth. However, the rise of e-commerce has led to an over-supply of retail space in both town centres and out of town. The result is depressed capital values with pushed out yields.
In the short and medium term, if the oversupply continues as we expect, value corrections are likely to occur, putting further downward pressure on retail real estate investment returns and therefore owners liquidating their investments or diversifying away from the sector.
However, this presents many opportunities for our clients.
Opportunities
There are real opportunities for investors and developers to repurpose some of these assets for alternative or mixed-uses. While there is no ‘one size fits all’ approach, and location, demand and local infrastructure will inform what is viable, repurposed uses are likely to range from leisure, food & beverage through to residential (e.g. student or build to rent) and logistics use.
The current economic crisis has exacerbated these trends and will result in many retail assets being further devalued. We therefore expect to see more opportunities to acquire retail assets at reduced values from sellers who are either moving away from the retail sector or seeking to rebalance their portfolios away from an exclusive retail focus. While the viability of repurposing each asset will be different, we believe this is an exciting opportunity for both investors and developers looking for sites with exciting potential to meet a new evolving demand in the market.
Our teams have the experience and agility to help highlight the critical path to a successful project, working alongside you and your other professional advisors to navigate potential roadblocks and pre-empt them with potential solutions tailored to the commercial context. Our team of lawyers have advised on some of the most complex and challenging real estate projects in the market over recent years and bring this experience and insight to benefit our clients.
Clarity of advice and depth of insight
Whether you are an investor, lender, developer, landowner, tenant, buyer or seller of real estate, you know the challenges of this market and you want experienced counsel from people who understand your needs.
