Alistair Johnstone, Associate Director at CBRE Ltd, discusses the issues facing Britain's Secondary Shopping Centres.
"Polarisation" and "lack of prime stock" are two current and commonly used terms across the commercial property market. In terms of shopping centres the former is certainly true. The latter has some truth but recently we have seen some action; Witney, Basingstoke and Meadowhall are each very different animals but to varying degrees are considered prime and show conclusively that if a scheme ticks the right boxes there remains a good depth of interest.
Where a scheme falls short and becomes more secondary the world is a very different place. Of course "secondary" describes a wide range of quality but even at the upper end of the scale, investor interest is weak. There is no shortage of recent examples where centres have been brought to the market but subsequently been withdrawn with vendor and purchaser expectations sometimes miles apart.
Polarisation is no surprise in a market downturn but there are additional reasons why it is so extreme in shopping centres. A number of factors over the past 25 years have permanently changed the landscape for shoppers and perhaps go some way to explaining the divergence. Starting with super regional shopping centres (the first being The Metro Centre in the mid 80s), then larger format American style supermarkets (pioneered by ASDA and Tesco in the mid 90s) and most recently the growth of on line sales have all lead to increased competition for consumer cash, as recently set out in BCSC's empty shops research report. Shoppers appear to have embraced the convenience of these new offers and thus far a big casualty is local secondary centres.
Retailers have responded with a move from high volumes of stores throughout the UK to concentrating and consolidating their stock into larger modern formats where trading remains strongest. This trend is being particularly highlighted by the ever increasing number of tenant administrations: Peacocks, Barratts, Game, TJ Hughes, La Senza, Millets/Blacks and Habitat to name but a few have all entered insolvency and left a trail of vacant stores in their wake. This has affected both prime and secondary schemes but the depth of tenant demand for stronger centres means that void space can be re let quickly, whilst in contrast, secondary schemes are seeing ever increasing vacancy rates and falling rental values.
If I was inclined to take an optimistic view then I'd say a new type of retailer could be just around the corner. Mobile phone shops, coffee shops and pound stores have all at one stage exploded onto the scene at unanticipated levels. Further a number of internet retailers, such as Amazon, are exploring the possibility of opening local click and collect style stores. Whilst still new territory, this seems the most promising opportunity for a secondary shopping centre fight back. However the pessimists amongst us will continue to preach the Armageddon scenario whereby the changing retail landscape has driven an oversupply which will never be satisfied and new entrants will be heavily outweighed by tenant administrations.
Polarisation of investment markets looks set to continue, with foreign cash that sees the UK as a relative safe haven chasing a limited level of prime stock. Conversely, would be purchasers of secondary centres are taking a wait and see approach and unless forced sellers come to the table it's unlikely there will be many transactions. The real uncertainty is the longer term future for secondary schemes especially as vacancy levels continue to rise. Could it be development to meet modern retail trends or more drastically a change of use?