Retail Real Estate Investment – ripe for the picking?

Historically, the retail sector has sat comfortably in its own cocoon largely sheltered away from the long term effects of business cycles, but is that all set to change?

Despite its longevity and established roots, we all know how quickly modern consumer confidence can impact on markets. The retail sector has always been reactive and ridden the waves with quick thinking, but is the impact of online shopping, for example, now too great to withstand prime market rents?

Prime high street retailers such as House of Fraser, Debenhams, M&S and WH Smith are all looking at shedding their bricks and mortar; and considering exit strategies for some of their stores in order to stabilise and redirect investment into their business. The Arcadia Group have also recently announced over 20 store closures with potentially the same again once the CVA arrangement is in place.

Whilst the impact on individuals of the loss of jobs should not be undermined, these closures are always reported as failures focussing on the loss of the traditional high street, but what about looking at this change as a positive potential for growth, re-investment and development?

At the same time as these closures, the financial market appears to be behaving proactively, bracing itself for a hard Brexit and offering 5-year fixed rates at an all-time low of less than 1%.

Borrowing for investment therefore appears to be very attractive. This, coupled with the ability to lock this borrowing in for 5 years and ride out political uncertainty and imminent market changes, means that there is great potential on offer.

But still I hear the banks say they have money to lend burning holes in their pockets. So why are investors not taking the plunge?

I suspect quick exits and cheap borrowing means even the smaller property companies could bag a bargain with investment opportunities giving a NIY of 4.5%. Investors must be rubbing their hands together with glee.

Throughout time, landowners have stood firm and tall at the top of the hierarchy of wealth, nothing save WWI and WWII has caused anything more than a short term blip in what we now refer to as the real estate market. So unless Trump pushes that big red button, the potential for aggressive gains makes investment opportunities particularly in retail real estate, ripe for the picking.

I doubt however that investors tempted by such opportunities will form an orderly queue like us Brits outside a Next Clearance sale, but will they jump in with both feet with Brexit on the horizon? Will the retail sector finally be worn down from the cumulative effects of supply chain uncertainty and changes in consumer habits washing over it? I doubt it.

Instead perhaps, this is the start of the metamorphosis for the retail sector to embrace the concept of flexible real estate solutions.

–  Suzanna Stephenson


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