UK retail: recovery despite wider economic storm
Consumer squeeze yet to bite as consumers continue to spend.
3 minutes to read
The well-documented consumer squeeze is likely to be less destabilising to retail than widely believed. Pent up spend (‘accidental savings’) to the tune of £220bn+ and a lockdown-fatigued consumer more than willing to part with their cash are significant cushions to wider economic forces, notably rising inflation and escalating energy costs.
History is on the consumer side – in times of economic hardship, the UK consumer has a counter-intuitive track record of spending regardless. At worst, consumers traded down rather than stopped spending altogether. In 1990/1991 (when inflation previously topped 5%) and 2011 (4.2%), retail sales values showed healthy growth and volumes witness only marginal declines (1991 -1.8%, 2010: -0.1%, 2011: -0.8%). Retail sales values for 2022 are likely to grow >5%, with volumes down <-1% at worst.
Read the latest Retail Monitor Report
Stabilisation of occupier markets
Occupational markets will continue to stabilise, the lifting of the moratorium on forfeiture at the end of March having proved little more than a minor bump in road rather than the bloodbath widely predicted. Most landlords and tenants have agreed appropriate compromise solutions to rent arrears through proactive, collaborative, adult discussions.
Unencumbered by lockdown, most retail occupiers are firmly in recovery mode, with spiralling inflation and supply chain challenges more manageable headaches than the enforced periods of closure endured during the pandemic. Huge challenges, but at least ones that retailers are in position to militate and strategize against.
Those retailers with the most inherent brand strength / equity will be best equipped to prevail.
Read the latest Retail Property Outlook
Online tax – more harm than help to high street operators
The proposed introduction of an online tax by the government is fraught with complexity and may ultimately prove more detrimental to the very thing it is designed to protect – the high street. Contrary to wider narrative, the dividing line between online and physical channels is extremely blurred. Multi-channel operators (i.e. those have both a store-based and online presence) actually account for a slightly higher share of the online market than pure-players (e.g. Amazon, ASOS, Boohoo etc).
Key to the debate is whether any online tax is levied against individual purchases or applied to individual operators. In the former instance, what actually constitutes an online sale is open to considerable interpretation and possible abuse e.g. click & collect purchases and it is difficult to see this system being workable. A more equitable solution to levelling the playing field would be an online tax that applied only to pure-play operators, but even then, the likes of Amazon would argue that they are multi-channel by virtue of Amazon Fresh and Wholefoods.
Retail two years on from Covid
Retail property continues to turn the corner
This year is a pivotal year for retail property market performance. All retail is forecast to achieve total return of 7.2%, with a second consecutive year of capital growth of +1.9%, but very polarised performance between retail sub-sectors.
Underlying rental decline is forecast across the retail sector; but retail warehouses and supermarkets returning to positive growth after respectively four and seven years of re-basing. We anticipate hardening of yields across the retail market. Yield compression to continue at retail warehouses in 2022 and resume at both prime shops and regional shopping centres. Already keen pricing on foodstores (with RPI increases) will likewise sharpen over the course of the year.
Read the latest Retail Investment Update
Read more or get in contact: Stephen Springham, head of retail research
Subscribe for more
For more market-leading research, expert opinions and forecasts, sign up below.
Subscribe to our newsletter