The UK retail sector could surprise on the upside, defying analysts' gloomy predictions, experts said at EPRA Insight 2017, a conference organised by the European Public Real Estate Association in London this week.
Despite post-Brexit uncertainty and the rise in imported inflation following sterling's fall, sentiment will remain positive, provided retailers give consumers the right experience.
'Retailers' profits will be impacted by higher import prices, there is no doubt,' said David Atkins, CEO of Hammerson, the retail specialist listed company. 'But you must take into account the British psyche: they like spending and they borrow to spend. Even now there is more optimism in the UK than in France. We have a presence in both countries, but personally I would favour the UK over France.'
It is all about location and experience, the EPRA event heard. Premium outlets like Bicester Village have had double digit growth in the second half of 2016, after the referendum, following single-digit growth in the first six months of the year, Atkins said.
Robert Noel, CEO of Land Securities, the UK's largest listed commercial property company by market capitalisation, agreed that 'creating the right experience will make the shopping centre work, regardless of Brexit.'
The food and beverage offer is playing an increasingly important role in creating the right experience, he said: 'The statistics are very strong, the percentage of income for shopping centres continues to increase. Now 10% of our entire business, £1.4bn, is food and beverage.'
A positive aspect of the growth of the food and beverage offer is that 'rents are higher, because they are very keen to be in the right locations, be they city centres or shopping centres,’ said Noel. One downside, he added, is that it is better to develop from scratch the new-look shopping centres, because ‘retrofitting food and beverage into an existing centre is tricky and extremely expensive.'
The rise of food and beverage is in line with consumers' changing demands and their wish to have a good experience. 'It is about so much more than just buying stuff now, and this is what online shopping will never do,' said Atkins. 'You have to be nimble, deal with different business models and keep up with the constant evolution in the way consumers are spending and behaving.'
Gloomy forecasts about British retail are therefore exaggerated, said Atkins: 'Ultimately retail goes backwards only when there is a large increase in unemployment or a recession. I simply do not see that occurring in the UK.'
Other panellists agreed to differ, pointing to a likely fall in consumer confidence and real wages. 'Short term in the UK we see a lot of risk on the retail side,' said Marcus Phayre-Mudge, head of property investment at BMO Asset Management. 'Negative real wage inflation will hit the man in the street very hard and will have an impact on sales. From this point of view I believe that Continental Europe is a better place to be.'
