Harper Adams University Retail Property Market Sector Valuation R5014c17 Study Notes
Retail Property Market Sector Valuation R5014c17
Introduction
The COVID-19 pandemic and consequent actions to contain it have significantly influenced the economic outlook of various nations.
The UK’s Trade and Cooperation Agreement with the EU has led to new trade barriers, increasing administrative costs for firms engaged in cross-border trade. It is projected that UK trade will be 10.5% lower in the long run, contributing to a GDP decrease of 3.25%.
Retail recovery has shown signs of stagnation, characterized by rising business costs and declining sales, which hinder expansion efforts.
Research Question (Q1): What has been the effect of COVID-19 on the sector?
GDP International Comparisons
Real GDP Growth for G7 Economies (2022-2023)
Table 6 Summary: Percentage change in GDP comparing quarter-on-quarter and annual growth rates from real GDP for 2022 to 2023 across G7 countries.
2023 Q1 GDP Growth Rates:
Canada: 0.6%
France: 0.0%
Germany: 0.1%
Italy: 0.6%
Japan: 1.2%
United Kingdom: 0.2%
United States: 0.6%
Annual Growth Rates (2023 Q4 vs 2022):
Canada: 4.5%
France: 1.8%
Germany: 0.1%
Italy: 3.6%
Japan: 1.0%
United Kingdom: 1.0%
United States: 8.2%
Source
Data compiled from the Office for National Statistics and OECD.
Consumer Confidence Overview
February Consumer Confidence Overall Index Score
Monthly comparison of consumer confidence measures from January 2023 to February 2024:
Overall Index Score:
February 2024: 12, January: -21, December: -19, Previous: -22, -38
Personal Financial Situation:
Over last 12 months: February 2024: 12
Over next 12 months: 0
General Economic Situation:
Over last 12 months: February 2024: 12
Over next 12 months: 13
Major Purchase Index:
February 2024: 15
Savings Index:
February 2024: 12
Source
Data source: GfK Consumer Confidence Barometer powered by NIM (February 2024).
Household Disposable Income
Household Disposable Income per Head (1960-2022)
Graph depicting household disposable income trend from 1960 to 2022 in real terms.
Key Income Values:
Up to £25,000 in recent years down to £0.
Source
Data from ONS, series CRXW. Reference year 2019.
Retail Sales vs GDP
Volume of Retail Sales Analysis
Index comparison from 2019-2023 adjusted for seasonality:
Online sales surged in all sectors during 2020 and 2021.
Percentage of all sales categorized by sector in Great Britain visualized as:
Food
Non-food
Total Values for 2022-2023:
January 2022: 100.3 (All Retail), 99.4 (Mostly Food), 103.0 (Clothing)
January 2023: 96.8 (All Retail), 95.9 (Mostly Food), 97.2 (Clothing)
December 2023: 94.2 (All Retail), 93.0 (Mostly Food), 94.7 (Clothing)
3-month percentage change on previous year for different types of retail were:
Total retail: -1.1%
Mostly food: 1.9%
Clothing: -0.6%
Source
Data primarily from the ONS Retail sales index and internet sales analysis.
Retail Market Overview
Top Non-Food Retailers Comparison (1990 vs 2020)
Comparison of top non-food retailers in terms of sales (in billion £):
1990 Rankings and Sales:
Marks & Spencer: £4.4bn
Kingfisher: £2.7bn
Boots Company: £2.2bn
John Lewis Partnership: £1.8bn
Burton Group: £1.6bn
Sears: £1.8bn
Great Universal Stores: £1.4bn
Littlewoods Organisation: £1.4bn
House of Fraser: £1.1bn
WH Smith: £1.1bn
2020 Rankings and Sales:
Amazon: £13.9bn
John Lewis Partnership: £10.3bn
Marks & Spencer: £9.4bn
Ebay: £8.1bn
Walgreens Boots Alliance: £7.2bn
Kingfisher: £5.1bn
JD Sports: £4.7bn
Next: £4.2bn
B&M: £3.5bn
Primark: £3.3bn
Source
Data compiled by Mintel, Corporate Intelligence, Knight Frank.
Factors Determining Property Value
Traditional Factors That Influence Retail Property Values
Location:
Macro and micro context (e.g., country, region, town or city).
Accessibility, size, and socio-economic grouping.
Position:
Shopping centre vs main street, pedestrianized location, proximity to magnets or complementary occupiers.
User Considerations:
Age and state of repair.
Lease terms and parking availability.
Access for delivery logistics.
Current Retail Market Dynamics
Trends and Shifts in the Retail Market
Increasing online sector alongside the rise of fulfilment centres.
Reduced but improved floorspace usage.
Anticipation of more Company Voluntary Arrangements (CVAs) and administrations likely to reshape the high street.
Increased negotiation emphasis between landlords and occupiers regarding short-term leases and turnover rent structures.
Heightened competition among retail landlords aiming to differentiate themselves.
Food stores expected to perform better than non-food alternatives.
Consideration of business rates holiday status and rental affecting current occupier market conditions.
Retail Vacancy Rates
Retail vacancy rates surged in 2020 and 2021.
Percentage of total retail and leisure units vacant in GB from Q1 2018 to Q4 2023 visualized via graphs highlighting:
Shopping centres, high streets, and retail parks.
Trends indicated rising vacancy rates from 2018 to 2023.
Types of Retail Properties
In-Town Retail:
Prime main streets, high streets, and pedestrianised locations (e.g., Central London).
Shopping Centres:
Including secondary and suburban street positions.
Out-of-Town Retail:
Shopping centres, mixed-use retail parks, and department stores.
Warehousing and Logistics:
Consists of supermarkets, superstores, hypermarkets, etc.
Retail Leasing Conditions
Demand has fallen due to economic conditions, resulting in increasing UK vacancy rates.
A recorded 4.6 million square feet of new lettings across a diverse retailer base.
Retail parks show improved performance; key high streets like Oxford Street are recovering.
Retail parks’ mixture of supermarkets, convenience, and lifestyle retailers demonstrates adaptability (e.g., Lidl, Decathlon).
Rental Trends in Retail
Declining retail rents attributed to reduced demand and increasing vacancy, adjusted for inflation.
Performance varies based on subsector and location; less affluent areas face the most significant impact.
Notable Rental Declines:
30% drop for Bond and Oxford Streets compared to pre-pandemic peak levels.
Malls and retail parks with food-anchored tenants remain more resilient.
Unique locations retaining character (e.g., St James Quarter in Edinburgh) fare better than monotonous large shopping centres.
Retail Sales Activity Analysis
High yield attracting some investors; however, interest rates and a lack of consumer spending remain challenging for demand.
Observed overall yield decompression in the sector with low volumes of large transactions occurring.
Resilience in sales observed among the food stores sector due to their essential nature.
Noteworthy transaction: Ikea's Ingka Group acquisition of Churchill Square in Brighton for £143 million, 43% less than the asking price of £250 million.
Top Owners in Retail Property
Key Retail Property Owners
Tesco plc:
Owned m²: 3,274,351
Owned Properties: 741
British Land:
Owned m²: 1,566,997
Owned Properties: 356
Sainsbury's:
Owned m²: 1,462,565
Owned Properties: 290
Morrisons:
Owned m²: 1,444,755
Owned Properties: 294
EG Group:
Owned m²: 1,411,394
Owned Properties: 374
…
Details on transactions involving properties bought or sold overall reflect market trends and values, with specifics on square footage and purchasing dynamics.
Top Buyers in Retail Property
Key Retail Property Buyers
Realty Income Corporation: £913,105,067 in sales volume across 109 transactions.
Sainsbury's: £430,899,999 across 26 transactions.
The Swatch Group: £146,000,000 in sales volume for 2 transactions.
…
Detailed statistics on average yield, sales price per square meter, and transaction volumes indicative of market activity.
Conclusion
A comprehensive overview of factors influencing the retail property market amidst the ongoing recovery from COVID-19, highlighting economic influences, consumer behavior, and dynamic market conditions.
thank you
Appreciation expressed for the engagement in analysis of the retail property market and dynamics at Harper Adams University.