UK retail sector sees ‘unprecedented’ value destruction

The UK retail sector has seen ‘value destruction on an unprecedented scale’, a leading real estate expert has said.

Speaking at the PropertyEU Outlook 2013 Investment Briefing in London earlier this week, Andrew Smith, global head of real estate at Aberdeen Asset Management, said that the state of the retail market is now one of the biggest challenges for UK investors.

As part of a panel of European property experts asked to make predictions about the real estate market in 2013, Smith said the severe conditions for retailing in Britain have caused a major downturn in property values.

He said: ‘It’s the destruction of the multiples and the constant stream of store closures and cuts in those networks. We have huge overcapacity in the retail sector in the UK’.

Echoing Smith’s assessment, Phil Tily, IPD’s managing director for the UK & Ireland, said that even some of the more traditionally resilient areas of the market were beginning to suffer.

He said: ‘The most recent part of the market to fall away was retail warehouses. They’ve typically held up very well but they’re feeling the challenge from the internet now as well.

‘We see a polarisation in retailing. Of the large prime shopping centres that can create more of a retail destination values have held up quite well, but others have fallen by 7-8%.’

Smith said there were still attractive opportunities but noted that these remained in the ‘strong regional locations and dominant shopping centres’.
At the other end of the spectrum, Tily pointed towards the discount sector as a potentially robust area for investors to look at.

He added: ‘On the discount side, retailers are faring relatively well, and previously that’s been quite a short-term phenomenon, but if the slowdown in the economic position is going to draw itself out they may present a stronger opportunity for a longer time frame than they have in the past’.