Continuing Optimism in the Out-of-Town Retail Market

Despite issues for a few high-profile names, it’s important to note that the last quarter has seen the most significant occupational activity in the UK retail out-of-town market for several years, buoyed further last week by news of Next’s profits upgrade.

The collapse of Carpetright into administration released over 200 stores into a market with a historic low vacancy rate. Occupiers have seen the opportunity for expansion, with demand in all sectors of the market: food, kitchen, furniture, together with gym and sports, and we are in a detailed terms discussion at improved rents on a number of schemes for our investor clients.

In addition, Sainsbury’s, having completed a package of 10 store acquisitions from Homebase in August, confirmed it had acquired an eleventh in Glenrothes earlier this week – part of a wider national expansion plan under its Next Level Strategy.

At the same time, continued concerns about Homebase have seen investors completing both insurance and overriding leases with occupiers who are keen to secure representation should any corporate restructuring occur.

It is not just the volume of transactions that is positive; it is the quality, depth, and variance of this demand that has resulted in transactions showing rental growth and further optimism about the sector’s future.

Additionally, the significant fall in inflation over recent months – CPI was measured at 1.7% in the 12 months to September 2024, down from 2.2% the previous month, according to the ONS – means that prices are now rising at their slowest rate for three years. RPI similarly fell to 2.7% in September, down from 3.5% in August (ONS). Both indicators should have a positive impact on consumer spending and sentiment in the retail market.

There is no room for complacency, however. The retail sector is a large employer, and the minimum wage increases combined with the employer’s national insurance rate increase in last week’s Budget, exacerbated by the unheralded reduction in the threshold at which NI becomes payable, will have a significant inflationary impact on wage bills.

Together with the reductions in relief on business rates for those in the retail sector, as explained by our Head of Rating, Josh Myerson, here and the unquantified costs associated with historic equal pay claims, these increases in costs to occupiers will have an impact.

We have already seen acquisitions placed on hold while retailers consider the impact of these changes, and it will be interesting to observe how it directly plays out in the UK retail out-of-town market, given the other positive factors currently in play.

Nevertheless, we remain positive due to the sector’s underlying strengths as a focus for multi-channel retailing, which is popular with consumers, retailers, and investors alike. Appetite for more space across the UK should be anticipated, although leasing decisions will be carefully calibrated to reflect these new economic factors.