Consumers of news will be under no illusion that the UK retail market is tough. 2018 has already seen a raft of CVAs and the nation’s much loved department stores are grappling with their business models.
In this demanding environment both retailers and retail destinations need to be on top of their game. Bold decisions drive performance and make the attractiveness of investing in retail property stand out. So my central argument is that the right retail is definitely worth investing in but it comes with a health warning: be willing to adapt.
Proactively taking back the keys in 2016 from House of Fraser at Highcross in Leicester took mettle on our part. They occupied 117,000 sqft over three floors in a prime position.
Our reconfiguration of the space is now nearly complete. A Zara store, the largest single floor store outside of London, opened last month. JD will shortly launch a new flagship, and our adventure golf offer and restaurants will open early next year.
Alongside a massive improvement in the customer offer, the project will deliver £1.5m of additional income. A step change in retailer line-up like this creates a superior quality of income growth and supported our decision to reduce portfolio department store exposure by 25%.
Such an insightful and energetic leasing approach is undoubtedly a draw to investors. The recent 50% disposal of Highcross attracted a major international investor. New to our JV line up and the UK retail market, it is a big vote of confidence against current headwinds.
Investors are looking for quality of income which is underpinned by leasing demand, rental tone and occupancy rates but polarisation is rife. Over the last three years, demand for space at flagship shopping centres has grown at twice the rate of other centres. At Hammerson, our leasing volumes are up 23% on last year with 80% of these signed above ERV.
Urban populations are growing and major cities are differentiated by the relative catchment wealth and density. The majority of our reshaped portfolio is in the top-15 European cities. Greater urbanisation has the potential to further transform the built environment and our City Quarters concept will maximise and underpin this value.
Looking ahead, insights tell us that urban flagship centres will continue to outperform.
These venues are important brand showrooms where shoppers meet, socialise and enjoy.
The ‘Big Day Out’ is the fastest growing shopping mission to UK centres, accounts for a
quarter of visits and generates the highest average spend per visit.
Physical space provides an emotional connection and brings people together. A shed in a
field, however well built, can never hope to achieve this. And with 78% of the European
population expected to live in cities by 2030, I know where I’d put my money.
As the winners and losers in retail shift, a more agile approach to tenant curation is
required. And in an increasingly urban environment, human beings are sociable and will
always look for memorable experiences which underline why there remains intrinsic value
in assets such as ours which bring people together.