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UK Retail House View

The latest house view on the UK retail market.

Originally published 23 March 2020 and updated 12 October 2020.

For decades, investment in UK retail property has been a highly profitable way to capitalise on the nation’s booming shopper economy. But as we flocked to shopping centres, out-of-town retail parks and high streets, a revolution was underway.

Online shopping, the apparent antithesis to physical stores, started irreversible structural shifts in the retail market.

In a society seeking convenience, comfort and relaxation, physical shopping suddenly needed to prove itself; it needed to be worth the trip. Like spectators at a finish line, we could see clear winners emerging in this new world: prime destinations with place-making at their heart; value retailers with no online offer; and functional, convenience retailing.  

So how have our landlords and retailers handled this change?

In much the same way as global governments reacting to the outbreak of COVID-19. Some took brave and ruthless measures to adapt, while others teetered in denial and indecision, learning tough lessons along the way.  

For the hesitators, for those in denial, COVID-19 has been the final blow. Retailers already struggling have gone into administration. Lockdowns have converted new customers to the online market.  


The strategic reaction from most occupiers has been to bring forward the reshaping and resizing of their portfolios, and the more progressive management teams already had plans under way before the pandemic struck. Their primary focus is not always less space, but better space, in locations with the highest volume of loyal shoppers; or replacing a catchment that has three stores in it, with a single, better store.

Online sales become a welcome friend to the property portfolio, providing rich data to help brands find their customers and bring the shop to them. Similarly, there is more competition to have a strong online presence, and we are seeing the start of retailers reframing how they view their channels – not as physical and online – but as one. From across the pond, American retailer, Target, has for a long time been leading this kind of inspiring change. The brand has put the store at the centre of its delivery function and encapsulates its supply chain journey in two words “one inventory”. Fulfilling most of its ecommerce orders from its stores (75% of digital sales in Q2), the retailer is saving money and time, and maximising the reach of its inventory. 

Turnover Lease

Government measures have reduced footfall and, to a lesser extent, consumer spending in physical  stores, swinging the economic balance between contracted base rents with landlords and the occupier’s actual turnover. This has brought focus to the ‘turnover lease’ conversation. Occupiers are seeking more links between the performance of their property and their leases. Tense negotiations are fuelled by a shift of power and underpinned by the excess supply of physical retail stores. To make turnover lease models work, occupiers will need to be transparent with their sales data and come to a fair agreement on which online sales are accounted for as part of the economics of serving that catchment. Landlords will need to take a more active role – for their own benefit – working with occupiers to see how they can help to drive footfall, conversions and identifying other advantages, where the economies of scale support landlords being more proactive in driving and delivering sales.  

Value versus Luxury

Value occupiers continue to be resilient, and if the country plunges into a recession, consumer preferences will shift even further towards value retail. Meanwhile, the gloss of luxury has waned. This market, highly dependent on not just the nation’s overall economy but the entire global economy and the international tourism it supports, is in flux until our borders are welcoming big and willing spenders from the Middle East, China and America once more. Even so, this robust market, has another looming threat. Tax-free shopping for international visitors is being abolished in December 2020, and could incentivise travellers in the £3.5bn industry to choose Paris or Milan over London.  


Grocery, a COVID-categorised ‘essential retail’, has seen relative growth bolstered, especially in early lockdown, by panic-buying. Online grocery doubled, but in-store still had a huge share of the market (approx. 80%). Retail parks have also especially benefitted from the ‘essential retail’ guidance, with grocery and DIY accounting for 66% of their offer. Post-lockdown, the out-of-town market is also recovering faster, with August footfall only 10.6% lower than the same time last year (Springboard). This bounce-back is in part due to customer confidence, with the characteristic open-air walkways and larger stores perceived as ‘safer’ in a socially-distanced world.  

Shopping Centres

Shopping centres suffered significantly. The growing trend for prime retail destinations was no match for outright forced closure of ‘non-essential’ retail, and in turn, a seismic growth swell to the online shopper community. Even on reopening, shopping centres have been slower to regain customers, but it seems shoppers still want a day out and to spend willingly, with an initial rise in conversion rates, and continually (until very recently) improving footfall. While prime sites still have the scope for recovery and have fared relatively better in this sector, secondary and tertiary are reaching breaking point, and will be unable to recover unless they opt for an entirely value retail mix, more F&B, or find alternative uses for the vanishing department stores. The new Class E Use Classes Order should facilitate some flexibility in this, although it does not bridge the gap to other valuable uses such as logistics, hospitality or healthcare – Westfield London’s bid to carryout COVID-19 tests on shoppers is an interesting segue into the latter. Prime retail destinations may shift to ‘prime services’ in due course.  

Central London

Super prime retail in central London is also in shock. Starved of two fundamental customer groups: international visitors and office workers, the lifeblood of the luxury market and coffee shops respectively, the over-supply of space has been exacerbated. Driving footfall back to these locations rests heavily on the shoulders of our tourism industry, and until then landlords and occupiers must tread water. On the other hand, London’s local village locations are thriving, think Sloane Square, Kings Road, Brompton Cross and Marylebone High Street. 

Investment Activity

All these trends lead to one: an almost complete immobilisation of retail investment activity. With fewer comparable sales to demonstrate market pricing, valuers and investors are forced to use subjective judgement, which is a game of trust. Once again, out-of-town retail leads the fore, either through foodstore sales, where there is more transparency of performance; or retail park sales with robust sales performance or highly-viable repositioning options. Investor confidence will only come when there are better performance measures vs. value, or the forced sales of assets to kick-start activity. 

We still believe, more than ever, in the long-term value of retail property. The measure of that value is simply evolving and becoming about the role of the store in the broader multichannel flow of goods used by almost all retailers to service their customers. This period of shock has a silver lining: it has been a well-needed motivator for many landlords and operators to innovate, and I, personally, am intrigued to find out what’s next.  

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