The Leading News & Information Service For The Facilities, Workplace & Built Environment Community

Is Retail Property Heading Down The Rabbit Hole?

High Street Decline
20 June 2018 | Updated 22 June 2018

How the disappearance of well-known retailers from the UK’s high streets is affecting the commercial real estate market - author of the Cass Commercial Real Estate Lending Report, Dr Nicole Lux comments.

Dr Nicole Lux said: “The fundamental changes in the retail sector are affecting real estate investment funds as well as lenders. House of Fraser is a huge retailer who has announced its cutting its existing leases by 25%. Retail rents are falling and landlords have to increase tenant incentives, making it more difficult for fund managers to deliver investment returns for retail portfolios.

“Some investors still believe in short-term headwinds but the sector is shifting fundamentally. Lenders already commented in the last Cass Lending survey that they are not willing to lend to regional or secondary shopping centres or high street retail property in a regional city. Especially, a shopping centre where there is already more than 15% vacant retail spaces is quickly going to deteriorate further in value.

“Of course for some investors, these will be investment opportunities, but turnaround strategies are highly risky and investors should question their fund managers’ capabilities before investing.

Lenders still have £25bn of debt outstanding to the retail property sector, representing approximately 20% of the secured real estate debt market in 2018. About one third is held by UK Clearing Banks and maturing within the next 4-5 years. Banks have already been reducing the amount they have been lending to the retail property sector since 2007 when the total outstanding debt to retail property was £55bn.

“Aside from dealing with insolvency and potential loan payment issues, the biggest impact will come from the deterioration of credit of these big retail names and reductions on leases, which will lead to a ratings decline under weaker slotting of these loans which means an increase in risk capital from 70% to 250%. This will make the loan more costly for the bank."

Picture: The High Street is in decline and property in the sector is a risky investment

Article written by Nicole Lux | Published 20 June 2018


Related Articles

Debenhams 50 Store Closures - First 22 Revealed

Debenhams Group Holdings has announced details of two proposed Company Voluntary Arrangements that will see 22 stores close by 2020. The first Company Voluntary...

 Read Full Article
Intu Shares Plummet As Second Offer Falls

In October, Intu Properties declared a £200 million fall in its share value. Now those shares have dropped another 38 per cent on the news that a consortium bidding...

 Read Full Article
Intu The Unknown - Retail Plummets Again

The retail sector took another kicking in the week ending October 26. Intu Properties, the shopping malls owner, has declared a £200 million fall in its value and...

 Read Full Article
Co-working Direct To The High Street

Maybe Mike Ashley has a different plan for House of Fraser. JLL in America has predicted that co-working in retail properties will grow 25 per cent per year, for the next...

 Read Full Article
Down Town - LAs Spend Big On Commercial & The High St

Local Authorities have spent £3.8 billion on commercial property assets in the last five years according to Carter Jonas, the national property consultancy, and...

 Read Full Article
Sumitomo Climbs To City Summit

British Land has signed an agreement for lease with Sumitomo Mitsui Banking Corporation Europe (SMBCE) Limited for 161,000sq.ft at the 100 Liverpool Street redevelopment...

 Read Full Article
Workman Appointed Property Manager for Heal’s Building

Workman, the UK’s largest independent commercial property management and building consultancy firm, has been appointed by General Projects as property manager for...

 Read Full Article
Landsec Purchases Additional 25% in Bluewater

Landsec has announced that it has acquired an additional 25 per cent share in Bluewater for £172 million. In a separate deal, Landsec will sell 25 per cent of...

 Read Full Article
Compass Group to Launch First ‘Frictionless’ Store

Compass Group has unveiled its plans to launch its first fully “frictionless” store in a workplace in early 2022. This store, a first for the foodservice...

 Read Full Article
Grosvenor Services Extends Contract with Westfield, London

FM company Grosvenor Services has announced that it will be continuing and expanding its partnership with Westfield London, Europe’s largest shopping centre, in a...

 Read Full Article