Retail landlords face £2.7bn in property value write-downs

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Retail Property:

Retail woes have put a real damper on high street property
values. Britain’s biggest landlords operating in the retail space have suffered
a £2.7bn write down in their combined portfolio values over the last 12 months.
 

With one major UK retailer after another either going into
administration or using CVAs (Company Voluntary Arrangements)* where some or
all of the stores are closed, rental and property values on the high street or
in shopping centres have plummeted.

In what appears to be a structural change in the way people
shop, with online sales taking a bigger and bigger slice of the retail pie,
some centres are suffering a significant shock, leaving landlords nursing
significant property value losses.

British Land, Land Securities and Intu, three of the biggest names in retail property are heavily exposed to the retail market. Consequently, they have seen their property asset values fall significantly over the last several years as the tougher trading conditions have resulted in store closures.

The trend has seen national retailers retreating to major
centres and cities, leaving many towns bereft of the major chains. This creates
a downward spiral as the loss of key anchor stores results in loss of footfall
and loss of rents for the property owners.  

The research organisation Growthdeck estimates that the top UK property firms and real estate investment trusts (Reit) wrote down £2.7bn in investments values over the last 12 months, which compares to just £232m the year before.

The shift in shopping habits means the pressure is on high street and shopping centre landlords. Faced their retail tenants closing stores and seeking to cut rents, as the major chains contract their estates, and increased costs** due to vacant properties, these landlords’ profits are under threat.

Research from Colliers International shows that around 11
cent of retail space on Britain’s high streets is currently vacant, with around
one-third of that vacant space having been empty for more than two years.

Dan Simms, co-head of retail at Colliers International, told
CityAM:

“It may be controversial, but we need to be realistic – this
is not sustainable, for landlords and local communities alike. Space that has
been empty for a period of time that is this prolonged will never, in all
likelihood, have a retail use again.

“Taking this into consideration and looking hard at the
current state of the UK’s retail landscape, we believe that this trend will
continue. The dilemma is how to reverse its crippling effects and ensure this
space doesn’t stay vacant. The ‘obsolete core’ must be tackled.

“What’s encouraging is that the retail property market is
already well underway in its response to this and there are repurposing
projects taking place across the UK to help reduce, convert and, in some cases,
remove this empty space entirely.�

*A CVA is a legally binding agreement whereby a company’s creditors (landlords) agree to allow a proportion of its debts to be paid back over time, through continued profitable trading. This usually means closing some unprofitable stores.

**When a commercial property becomes vacant the business rates liability falls on the landlord, the insurance costs increase considerably, and the landlord administration burden increases with utilities suppliers etc.

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