Knight Frank predicts better year for retailers and consumers in 2015

According to Knight Frank’s UK Retail Property Market Outlook 2015, dwindling supply of well-located stock will continue to drive South East and London rental growth, which will be factored into pricing by investors. Well-placed good secondary retail assets with solid demographics, will sell well.

Arguably, those schemes with the broadest consumer appeal will thrive at the expense of the poorer quality ones.  Key attributes could be the quality of tenant mix and accessibility, although the out-of-town market has moved steadily towards “fun shopping”.  As we have seen with high streets and shopping centres, the best out-of-town parks now provide an increased focus on a strong leisure and catering offer aimed at prolonging dwell times and boosting expenditure.

One potential cloud on the horizon –with the growth of online sales bringing store networks under ever increasing scrutiny, the forthcoming rush of lease expiries will provide retailers with an unprecedented opportunity to reduce property costs by downsizing their portfolios.  This is likely to reinforce the polarisation already being seen in the market, with secondary/weaker schemes suffering at the expense of the better schemes – bringing with it greater divergence in investment performance.  That said, while the rise of online shopping may result in smaller store portfolios, the growth in “click and collect” is helping to maintain the importance of the store.

Omni channel retailing will become the dominant norm in 2015. Occupiers will need to implement in store technology advancements in order to keep the consumer engaged and enhance the customer experience. Retailers should embrace strategies in which mobile, online and in-store experiences should complement, rather than compete with, one another.

Knight Frank predicts the first half of 2015 is likely to be dominated by uncertainty surrounding the general election; however, retail sales will receive a boost from a buoyant labour market, lower inflation on the back of the fall in oil prices. Slower but still positive house price growth will continue to support strong consumer confidence.

However, the retail market continues to be driven by structural change due to the growth of online shopping and profit margins for bricks-and-mortar retailers will continue to be squeezed by non-store sales and an increasingly internet savvy population.

The news that the Chancellor in his Autumn budget will cap the inflation-linked increase in business rates to 2% and undertake a full review of the structure of business rates is welcome news to the retail sector. However, fundamental changes need to be implemented going forward especially with consumer’s increasing preference to shop and buy online rather than in store.