For the last year, and before that, mentions of retail property have largely come with plenty of downbeat commentary, from tumbling values to falling rents.
Among the landlords exposed to difficulties in the sector is FTSE 100 company British Land, which has just reported that so far it has only collected 54% of the retail rent it was due for the March quarter, which covers the three months ahead from that date. The firm does however expect this to improve in the coming weeks, and points out it does not take into consideration “adjustments made in support of our customers” as a result of Covid-19. That could include rent holidays or deferrals in some cases, for example.
Despite turbulence in the UK retail real estate sector, British Land has said it is exploring opportunities “to acquire high quality, well located retail parks”.
The company, which looked to start reducing its retail exposure in 2018, is now looking at more deals. It says: “We see a value opportunity in out of town retail, reflecting increased yields and a more stable occupational market.”
The move to look at these opportunities comes at a potentially good time. Firstly, after a difficult year for many tenants and landlords, there are some distressed owners that could sell retail parks with good discounts. There are attractive returns to be had on current prices.
For occupiers, rents and service charges can be cheaper at retail parks than shopping centres, for example, which could make retail parks more appealing to some brands.
Rents have been falling and may do further, but sites are still likely to provide steady income for landlords that remains attractive, albeit less attractive than in years gone by.
Meanwhile, as lockdowns ease further and stores reopen, retail parks may look welcoming to shoppers that are still cautious about heading out and using public transport, and that want less crowds. Recent results from Next said “in general, retail park stores are local and easier to access, with social distancing simpler to maintain both within and outside the store”. Last month John Lewis Partnership said that when its department stores were allowed to reopen last summer, footfall held up better in retail parks - easily accessible by car - than on the high street.
Longer term, looking past the pandemic, retail parks could still be in demand with businesses. British Land, which is led by Simon Carter, says its sites “play an important role in a successful online retail strategy facilitating click and collect, returns and ship from store”.
We know there are a wave of new digital shoppers that have been created during the virus crisis, so shops on retail parks could complement retailer online offerings.
The high street is still a great place for shoppers, and as a number of fashion brands have shown recently, from Kurt Geiger to Monsoon, there are certainly retailers that do want to open more standalone branches. But, for real estate investors looking at what to put in their baskets at the moment, retail parks could be a option.