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Dynamics

The UK retail landscape continues to undergo structural change, influenced by the growth of online sales, the rise of omnichannel and economic factors impacting consumers. Although consumer confidence grew in 2015 and remains ahead of pre-2007 levels, this has not translated into a strong uplift in cosumer spend. There is, however, good demand from retailers for the right size of space, in destinations that provide breadth and depth in retail and catering offers - together with great formats - are best positioned to drive footfall and sales.

The investment market sees continued demand for prime assets, which are relatively scarce. With secondary assets, we're seeing mismatches between vendor expectations and prices offered.

Opportunities

There are a range of opportunities for those best able to understand the changing requirements of consumers and retailers. These dynamics include:

  • Growing demand for locations that offer convenience or a great experience, which means assets with a clear offer are more likely to thrive
  • People are shopping less often, but spending more and staying longer in the best locations, particularly larger centres
  • Catering and leisure offer is becoming ever more important
  • The most successful large retailers are developing multi-channel strategies that integrate physical and internet retailing, including click and collect, and this is creating demand for new formats
  • Experiential 'showrooms' and flagship stores are increasingly popular. Some retailers have also invested in smaller format stores to geographically infill their portfolios and support omnichannel services such as click & collect.
  • Click & collect sales in the UK are expected to grow by a further 50% from 2016 to 2020 (Verdict Research)   
  • Landlords who partner with omnichannel retailers can provide inspiring store environments that drive footfall and both in-store and online sales. Successful centres with low void rates can create rental tension and leasing momentum as retailers seek out the right trading space
  • Customers have a greater appetite for personalisation and are more prepared to share their personal data in exchange

Challenges

Significant challenges in the sector include:

  • Growing segmentation of the types of stores required - experiential stores require large units in dominant locations, while convenience stores are smaller and often located near transport hubs. Landlords unable to offer space meeting one of these criteria will struggle.
  • Although consumers are continuing to enjoy low interest rates and low inflation environment, UK economic uncertainty is reflected in relatively cautious consumer spending figures from the British Retail Consortium
  • Famous high street brands, with well-established and mature store portfolios, are finding it hard to keep up with fast fashion operators, who can react quicker to consumer trends, and those who embrace omnichannel early. Large but inneficient stores, or those in marginal locations, are likely to lose out to consolidation
  • Online retail sales growth from 2015 to 2020 is forecast to be slower than the previous 5 years, but it will still account for circa 17% of all retail sales in 2020, up from just 8% in 2010. A third of UK shoppers are spending more online versus a year ago (Verdict Research)

Market during the year

  • Consumer spending continued to rise throughout 2015 and was 2.7% higher in Q4 2015 than in the same period a year ago (Source:ONS)
  • Looking ahead, British Retail Consortium forecasts shows double-digit growth for online. Sales growth in physical stores will remain low although dominant destinations with flagship stores will see greater overall sales
  • Footfall in the UK continues to lag bahind previous years, although footfall in prime locations out-of-town and in regional cities is bucking this trend  

Outlook

We expect continued demand from both international and national operators for the best trading destinations across the UK. Fast-moving fashion brands and omnichannel retailers are expected to capitalise on ever-changing consumer shopping habits, setting them apart from mature and established high street brands. The physical store is seen as an integral part of the omnichannel model, but it must provide the right consumer experience.

Successful destinations will be those that provide a great experience; places where people can shop, eat, socialise and take part in leisure activities, preferably regularly. Locations that can provide a relevant and dynamic line up of retailers, food and beverage operators, events and an inspiring shopping environment will ultimately outperform.

Statistics

 LS 2016 - Retail Chart 1

 

LS 2016 - Retail Chart 2

 

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