The past decade has not been kind to retail property. First came the rise of online shopping, sending consumers away from high streets and onto their laptops. Then came the pandemic, which drove away the remaining shoppers. What ensued is perhaps best described as a bloodbath, with valuations plummeting as rents fell and insolvencies mounted. But there were signs at the end of last year that interest is starting to return.
The argument is that retail has suffered enough. Advocates say rents have rebased and retailers' margins have improved, meaning rents can now rise again. While ecommerce is certainly here to stay, so are shops – in some locations. A quick Saturday afternoon walk around Westfield in Shepherd's Bush is enough to demonstrate this. People do still like visiting shops in person, even if they will still buy certain things online. The other argument made by investors in the sector is that people are no longer building new shopping centres and retail parks, meaning that the sector is unlikely to see a flood of new supply.
The underlying economy is a key driver of rents, with rents rising as retailers' margins improve. Retail sales fell by 0.2 per cent last month (Christmas and Black Friday took place in the period, but the figures are seasonally adjusted). However, this is not necessarily a bad thing for the listed real estate investment trusts (Reits), given they focus on the prime end of the market where sales are more likely to hold up. Looking ahead, April's increase in the minimum wage could also help things along by putting more money into consumers' pockets.