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

Share



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
NFU Mutual Sells Eight Prime UK Logistics Assets to Barings

Barings, a subsidiary of MassMutual, is to acquire a portfolio of logistics properties from NFU Mutual in a deal worth £234 million. The eight assets are all...

 Read Full Article
1930s Wrexham Shop Refurbished Into a Church

An iconic 1930s former retail unit has been transformed into a church and community centre within the new city of Wrexham. The project has been named “Best...

 Read Full Article
Amazon Looks to Offload 10m Square Feet of Warehouse Space, Reports Suggest

Amazon is looking to sublet or terminate leases of excess warehouse space due to a drop in online shopping, says Bloomberg. According to the news report by Bloomberg,...

 Read Full Article
Harrods’ Facilities Team Achieves Paper Towel Sustainability

Harrods, the Knightsbridge luxury department store, has solved one of its biggest FM challenges by diverting tonnes of its used paper hand towels from general...

 Read Full Article