Real Estate for a changing world
RESE ARCH
At a Glance
RETAIL FOCUS
Q2 2016
The Stats... At a Glance
The Retail Market
GDP
Retail Sales
1.40%
4.3%
q Forecast 2016
p on June 2015
GfK Consumer Confidence
UK Footfall
-9
-2.8%
With just over a month since the result of the EU
Referendum, uncertainty as to the full impact on the UK
retail market still reigns. We expect the picture to become
clearer in Q3/4 when the main retail market indicators
react to the post Brexit environment. The GfK Consumer
Confidence Index fell to -9 following the outcome of the
Referendum, the fastest decline for 22 years. A large
regional disparity exists, with the South of England
experiencing the smallest decline in confidence (-2 points
to -1), whereas the North saw confidence decline by 19
points to -15.
q on June 16
q on June 2015
Source for all charts BNP Paribas Real Estate//Property Data/ Local Data Company/ BRC Nielsen
The Bank of England’s MPC surprised markets by deciding
to keep interest rates at 0.5%, despite heightened market
expectations that it would cut the cost of borrowing to a
new historic low of 0.25% to cushion the economy. The
unchanged rate more than likely represents a deferment
of the inevitable.
UK unemployment stood at 5.0% in June 2016 down from
5.1% in the previous quarter, the lowest rate since 2005.
Falling unemployment could suggest that the labour
market remains a source of strength for the economy and
that growth may not have softened as much as initially
estimated in opening months of 2016.
On a Y-o-Y basis, retail sales volumes grew in June 2016
by 4.3%, the 38th consecutive period of Y-o-Y growth.
Compared to May 2016 however, retail sales dropped by
0.9%. Clothing and footwear represented the largest drag
on sales, with inclement weather affecting purchases.
Deflation within the UK retail space has continued at
pace in June 2016. Overall shop deflation fell to 2%, the
sharpest decline since September 2015 according to the
BRC-Nielsen Shop Price Index. Fears of a new price war in
the grocery sector saw prices for food drop by 0.8% in June,
down from 0.3% in May.
Q2 saw the demise of two of the UK’s oldest retailers. BHS
was liquidated following the failure of the administrators
to find a buyer, resulting in the planned closure of 163
stores and the loss of 11,000 jobs. In addition, Austin
Reed also collapsed, resulting in the closure of 120 stores.
Whilst the demise of these retailers will take time to feed
through into the vacancy rate, a combination of average
results earlier in the year and pre-Referendum uncertainty
has resulted in a slowdown of take up across the UK. The
UK retail vacancy rate did fall in Q2 to 12.3%, with the
South East the only region to witness an increase.
Contacts
Nick Robinson
Research
020 7338 1016
[email protected]
Patrick Heaps
Head of Retail
020 7338 4084
[email protected]
Ashley Layton
Out of Town Retail Investment
020 7338 4291
[email protected]
Robert Hargreaves
Central London Agency
020 7338 4490
[email protected]
Stuart Cunliffe
Shopping Centre Investment
020 7338 4875
[email protected]
UK RETAIL FOCUS - Q2 2016
The Investment Market
4,500
5%
45%
32%
4,000
Retail Investment (£m)
% of Total Investment
40%
36%
Q2 2015
3,500
£3.13 bn
35%
3,000
27%
30%
2,500
Total Retail Warehousing Volume (£m)
2,000
Total Shopping Centre Volume (£m)
25%
Total Unit Shop Volume (£m)
Total Supermarket Volume (£m)
1,500
20%
5%
1,000
28%
15%
500
0
Q2 2016
Q1
Q2
Q3
Q4
Q1
2011
Q2
Q3
Q4
Q1
Q2
2012
Q3
Q4
Q1
2013
Q2
Q3
Q4
Q1
2014
Q2
Q3
Q4
Q1
2015
Q2
37%
£2.37 bn
10%
2016
Investment in the second quarter of 2016 fell just shy of
the long run average, with £2.37bn invested into the retail
sector. Whilst uncertainty has been very much present
across all CRE sectors, retail has not been as affected as
perhaps was anticipated following Q1’s lacklustre volumes.
With the exception of supermarkets, investment in Q2 was
evenly split between the retail subsectors. Shopping centres
once again recorded the highest volume, in no small part
due to Intu’s £410m purchase of the 50% remainder share
of Merry Hill Shopping Centre in Dudley. The centre was
purchased from QIC Real Estate and represented a 5.1%
initial yield.
The largest out of town retail transaction in Q2 was TH Real
Estate’s purchase of Thurrock Shopping Park, for £93.07m.
The 274,000 sqft centre was purchased from Hammerson at
a 5.30% initial yield.
Despite the uncertainty generated by the Brexit vote, prime
yields remained generally static in Q2. Prime Out of Town
retail was the only subsector to shift, with yields softening
by 25bps to 4.75%. Current sentiment would suggest the
possibility of yields drifting across the board. For the most
part, while this is yet to be proven, we anticipate this will
occur before the end of the year.
30%
Prime Retail Yields
In-town (Prime towns)
6.50
Out-of-town (Fashion parks)
Shopping centres (Prime not regional)
Supermarkets
6.00
5.50
5.00
4.50
4.00
3.50
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
Q1
2013
Q2
Q3
2014
Q4
Q1
Q2
Q3
2015
Q4
Q1
2016
Q2 2016 Key Deals
Address
Type
Size (000s
sq ft)
Purchaser
Vendor
Merry Hill, Dudley (50% Stake)
SC
1,399
Broadway Shopping Centre,
Bexleyheath
SC
525
Thurrock Shopping Park,
Thurrock
RP
Willow Brook Centre, Bradley
Stoke
Price (£m)
Yield (%)
Intu Properties Plc
QIC Real Estate
New River Retail
Canadian Pension Fund
410
5.20
120.25
6.70
274
TH Real Estate
Hammerson
93.07
5.30
RP
295
Arax Properties
BP Pension Fund
88.75
6.20
Morrisons, Pinner Road, Harrow
SUP
65
Investra Capital
Standard Life
28.40
5.50
Waitrose, New Union Square,
SW8
SUP
36
Middle Eastern Investor
Ballymore Properties
22.00
3.50
Royal Parade, Plymouth
UNI
600
British Land
M&G Real Estate
70.00
6.50
Blossom Portfolio
UNI
216
London & Cambridge
EPISO3 Luxembourg SARL
23.34
8.73
www.realestate.bnpparibas.com
Q2