Summer 2013 out-of-town retail & leisure · goods remained weak, falling by 0.5% and 3.4%...
Transcript of Summer 2013 out-of-town retail & leisure · goods remained weak, falling by 0.5% and 3.4%...
Highlights• Whileoveralleconomicgrowthisexpectedtobeweakfor2013,recentdatasuggeststhatthemacrooutlookfortheUKisimproving.
• However,intheout-of-townretailmarket,headlinerentshavefallenandcontinuetoedgedowninmanylocations.Thisisduetogeneralmarketweaknessandalsototheincreasingdominanceofdiscountretailers,whotakeamoreaggressiveapproachtopropertycosts.
• Yieldsforbetterqualityretailparkassetshavebeenhardening;conversely,valuesformoresecondaryassetshavefallen.Yieldsforprimeleisureassetsmeanwhilearenowwithin75-100bpsoftheirprimeretailequivalents.
• Out-of-townretailinvestmentvolumesfortheyeartoMay2013areinlinewith2012,whileleisureinvestmentvolumes(excludinghotelsbutincludingpubs)almostreached£500million.
research
Summer 2013
out-of-town retail & leisureOccupational&investmentmarkets
2
Summer 2013OUT-OF-TOWN RETAIL AND LEISURE Occupational&investmentmarkets
Economic overviewThe second estimate for Q1 2013 GDP confirmed that the UK economy grew by 0.3%, driven by a strong contribution from the service sector (0.6%) and a smaller contribution from production (0.2%). On the downside, the construction data was weak (-2.4%), as was manufacturing, which declined for the second successive quarter (-0.3%).
However,onapositivenote,thelatestforward-lookingPMIsurveyshavebeenmoreupbeatacrossthemanufacturing,constructionandservicesectors.Therearealsosignsthatconsumerconfidenceisreturning,followingalongperiodofgloom,withGfK’sconsumerconfidenceindexrisingby5pointsinMay.Whiletheoverallfigureremainsnegativeat-22,therecentimprovementcontinuesamoreupbeattrendseensincethestartof2013,whichhasbeenreflectedinthelatestretailsalesdata.
Theinflationpicturehasmarginallyimprovedinrecentmonths,butremainsabovetargetandsomewhat“sticky”.Indeed,ONSdatashowedthatCPIinflationrosefrom2.4%to2.7%inMay,higherthanmostforecasts,onthebackofariseintransportandclothingcosts.TheincreasetakestheheadlinerateofinflationbacktothelevelsseenbetweenOctober2012andMarch2013.
Recentpaygrowthfiguresmeanwhileshowamarginalimprovement–albeitstillrunningathalftherateofinflation–withthethree-monthaveragefigurerisingto1.3%forApril.Whilethepressureonconsumers
hasthereforeeased,realincomesarestillbeingsqueezed.
UnemploymentremainsoneofthebrighterspotsoftheUKeconomyandremainsverylowincomparisonwithmanyEuropeancountries.TheunemploymentrateforFebruarytoAprilwas7.8%,unchangedonthepreviousthreemonths,withthenumberofpeopleoutofworkdecliningbyjust5,000to2.5million.ThemoreprecisecountofJobseeker’sAllowanceshowedafallof8,600to1.51millioninMay.
TheoutlookcontinuestoimproveformostpartsoftheUK,althoughthepathtoamoresustainedrecoverywillremainslowandbumpyandwillvarybyregion.MediumtermforecastssuggestthatthestrongesteconomicgrowthwillbeinLondonandtheSouthEast.Relativelyhighlevelsofemploymentandimprovingconsumerconfidenceshouldfilterthroughtoconsumerspendingastheyearprogresses.
TheEurozoneremainsweakbutatleastappearsmorestableand,despitehighunemployment,positivegrowthhasreturnedtotheUS.
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
%
Q1-Q42008
Q1-Q42009
Q1-Q42010
Q1-Q42011
Q1-Q32012
Q12013
Figure 1
Quarterly GDP growth
Source: ONS
-45-40-35-30-25-20-15-10-505
10
2009 20112010 2012 2013
Consumer Confidence
Index
Personal financial situation over
next 12 months
General economic situation over
next 12 months
Figure2GfK consumer confidence
Source:GfKNOPConsumerConfidence
-8
-6
-4
-2
0
2
4
6
8
May13
May12
May11
May10
May09
May08
May07
May06
May05
May04
Ann
ual %
cha
nge
Annual changeCPI All Items
Average weeklyearnings growth
Figure 3
CPI and pay growth
Source: ONS
3
Trends – Discount retailers
KnightFrank.com
The out-of-town retail landscape has changed significantly in recent years, with the balance of power now firmly in the hands of the discounters. While the property industry may have reservations about some of these brands, consumers have clearly embraced the value end of the market.
Anumberofdiscountershaveundergonedramaticexpansion.TheseincludeoperatorssuchasPoundworld,whichwasfoundedin1997andnowhasover170stores,ofwhicharound120areout-of-town,withanother170storestargeted.Similarly,99pStores,whichwasfoundedin2001,nowhasover190stores,aidedbytheadditionofover40formerWoolworthsstores.Thecompanyalsotradesout-of-townasFamilyBargains.Bothcompanieshaveachievedverystrongsalesgrowthinanenvironmentoflowmarginsandfiercecompetition.Indeed,Poundlandrecentlyreducedsomepricesto97ptoundercutits99privals.
Inthediscountfoodsector,Aldi’ssalesgrowthhaseasilyoutpaceditslargerrivals,withgrowthof31.5%in2012.Ithasgainedsignificantmarketsharethroughitsofferofcheaperversionsofclassicproducts,withoutcompromisingonquality.
Analysissuggeststhattheleadingdiscountershavesomeofthehighestprofitmarginsintheretailsector,withDunelmat15.8%(source:OrielSecurities).Whilethestrengthofdemandfromtheseoperatorsshouldintheorydrivehigherrents,therealityisthattheyareveryfocusedonmarginsandcostsinthecurrentenvironment–includingproperty.
Figure4aboveshowstherentspaidbysomeofthemoreaggressiveretailersin
recentyears,includingfourofthetopfivespacetakersin2012.Acomparisonofthisdataagainstsomeofthemoreestablishedout-of-townplayerssuggeststhatheadlinerentshavefallensteadily.Therefore,whilelandlordshavebeenabletofillthevoidsleftbyretailerclosures,thishasbeenattheexpenseoflowerrents.TheonlyestablishedplayerinthetopfivespacetakersisTKMaxx,whichisexpandingtotakeadvantageofstrongconsumerdemandforqualityproductsatlowprices.However,theaveragerentontheirexistingstoreportfolioishigherthanthemorerecentlyestablishedplayers.
AveragerentsforTheRangeacrossasampleof54storesis£10.55persqft,whileB&Mpaysjust£11.71persqftacrossasampleof91stores.Thesefiguresaremuchlowerthanforthemoreestablishedoperatorswhichexpandedbeforetherecession.Carpetrightforexamplepays£18.64persqftonaverage(basedonasampleof294),whileMothercare’saveragerentacrossasampleof85storesis£23.26persqft.
Discount retailers take over
1 million sq ft of new space in 2012
Top 5 increases in floor space in 2012
• B&M–410,000sqft
• Kiddicare–350,000sqft
• Dunelm–250,000sqft
• TKMaxx–240,000sqft
• HomeBargains–230,000sqft
0
5
10
15
20
25
Mot
herc
are
(85)
TK M
axx
(111
)
Argo
s (2
32)
Carp
etrig
ht (2
94)
Hal
ford
s (3
21)
Stap
les
(94)
Hom
e Ba
rgai
ns (5
4)
Poun
dstr
etch
er (9
1)
Mat
alan
(184
)
Dun
elm
Mill
(87)
B&M
(91)
The
Rang
e (5
4)
Aver
age
rent
s £/s
q ft
per p
ortfo
lio
Figure4Discount retailers
Source:TrevorWoodAssociatesNumbersinbracketrelatetosamplesizeofstoreforeachretailer
Withallretailsalesupby1.9%year-on-year,itprovidesaboostforamoresustainedrecoveryinthewidereconomy,despitefearsthatacontinuedsqueezeonhouseholdearningscouldputthebrakesonanygrowth.
Vacancyratesonretailparksedgedupto9.9%(source:TrevorWoodAssociates)attheendof2012,comparedwith9.1%intheprevioussixmonths.Thisisthebiggestincreasesince2008andwaslargelydrivenbythecollapseofComet,JJBSportsandPeacocksduringthesecondhalfof2012.ThisfigureobviouslydoesnottakeintoaccountthefailureofHMV,DreamsandBlockbusterinthefirstquarterofthisyearanditremainstobeseenwhetherthevacancyrateswillcontinuetoedgeupastake-uplevelssoften.
Data from the ONS for May showed that retail sales of non-food (2.2%) increased over the year, while sales of both food and household goods remained weak, falling by 0.5% and 3.4% respectively, reflecting the recent trading performance of a number of key retailers in the out-of-town sector.
Thereremainsadegreeofcautiontowardssomeretailers,thoughthe‘watchlist’hasshortened.Thereisevidenceofdemandfromawidearrayofmoresecureretailersfromdiscounterstofashionbrands.However,thisdemandisatarentallevelbelowmostlandlords’aspirations.Whilstthisisnotsurprising,thefactthatsomanyretailersareattemptingtopursueexpansionstrategiesisapositive.
IPDfiguresforMaysuggestthatrentalgrowthintheretailwarehousesectorwasmildlynegativeonamonthlybasisat-0.05%,withanannualdeclineof-0.78%.However,itremainsthebestperformingsectorcomparedwithshoppingcentresandhighstreets.
Out-of-town retail Occupier market
4
-20
-15
-10
-5
0
5
10
15
%
May07
May08
May09
May10
May11
May12
May13
Household goods All retail sales Automotive fuel
Figure5All retail sales, household goods & automotive fuel
Source:ONS(volumeyear-on-yeargrowth)
Summer 2013OUT-OF-TOWN RETAIL AND LEISURE Occupational&investmentmarkets
-8
-6
-4
-2
0
2
4
6
8
%
May03
May04
May05
May06
May07
May08
May09
May10
May11
May12
May13
All retail Shops
Shopping centres Retail warehouses
Figure6Annual rental growth
Source:IPD
The second quarter saw approximately £444m worth of out-of-town investment deals (although 27% was made up of large portfolio sales), showing a 146% increase in volume on the previous quarter and a 25% increase in the number of transactions. RecentkeytransactionsincludethesaleofColiseumShoppingParkinEllesmerePort.TheCrownpurchasedtheparkfromEquitableLifefor£81m,reflectingareportedNIYof5.25%.Inaddition,KKRandQuadrantEstatesrecentlycompletedthepurchaseoftheTuscanyretailparkportfoliofromResolutionfor£112.5m.
WhilstthegoodsecondaryOpenA1markethasbeenquietinthelast18months,Q2witnessedtwodeals,includingtheacquisitionofGalaRetailParkinGalashielsbyPrudentialforc.£11.2m(reflectingaNIYof6.25%)andthepurchaseofSuffolkRetailParkinIpswichbyOrchardStreetfor£18.75m(reflectingaNIYof7.10%).
GallionsReachShoppingParkinBecktoncametothemarketinMaywithaquotingpriceof£110m,reflectinganetinitialyieldof6.00%.Theavailabilityofprimesolusstockhasbeenlimited,althoughtherehavebeentwobenchmarktransactions,namelytheWickesinBicesterwhichsoldfor£5.7m,reflectinganetinitialyieldof6.15%,andtheB&QunitinSouthend-on-Seawhichsoldfor£24.25m,reflectinganetinitialyieldof6.50%.
Overallinvestorsentimentismorepositivethanearlierthisyear.However,thereis
stilladegreeofyieldpolarisationbetweenprimeandsecondaryassets,inparticularthebulkygoodssectorwhererentsareunderpressure.YieldsforprimeOpenA1schemeshardenedfrom5.35%to5.25%inJune,whileyieldsforprimeBulkyGoodsparksmovedoutto6.50%.Weexpectthistrendtocontinue.
Major retail investment transactions
Retail Park Purchaser Vendor Price NIY (£m) (%)TuscanyPortfolio KKRandQuadrantEstates Resolution 112.5 7.50
StoneLakeRetailPark,London Aberdeen LXB 32.95 6.50
PurleyWay,Croydon StandardLife Aviva 31.70 5.90
AngliaRetailPark,Ipswich StarwoodCapital ELAS 29.50 7.80
SuffolkRetailPark,Ipswich OrchardStreet Aberdeen 18.75 7.10
LadyBayRetailPark, Threadneedle LaSalleIM 16.30 8.80Nottingham
GalaRetailPark,Galashiels Prudential Aviva 10.87 6.40Source:Propertydata.com,KnightFrank
Investment market
KnightFrank.com
5
0
100
200
300
400
500
600
700
800£m
2008 2009 2010 2011 2012 20130
10
20
30
40
50
60
Num
ber o
f tra
nsac
tions
£m Number of transactions
Figure9Retail warehouse investment transactions
Source:Propertydata
%
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Jun2008
Jun2009
Jun2010
Jun2011
Jun2013
Jun2012
Food Store Open A1/Fashion Park
Bulky GoodsRetail Park
Figure7Prime out-of-town retail yields
Source:KnightFrank
%
2
4
6
8
10
May03
May04
May05
May06
May07
May08
May09
May10
May11
May12
May13
Initial yield Equivalent yield
Figure8Long-term retail warehouse yields
Source:IPD
Unsurprisingly,openingsinbothsectorsdeclinedin2009.However,2012sawatleastfourtimesthenumberofnewA3(casualdining)openingsonretailparks,comparedwithfastfoodoutlets.
Operatorsarecurrentlyfacedwithhowtogrowturnoverinaweakconsumerenvironment.Theanswerhasmainlybeenorganicgrowth,particularlyamongstthecasualdiningoperatorssuchasASK,PizzaExpress,Nando’s,Frankie&Benny’sandTGIFridays.Thesebrandshavetraditionallybeenseeninthehighstreet,shoppingcentresand/orleisureschemes.
Mostofthesecompanieshavechosentolocateonshoppingparks,wherethetypeofconsumersandlongopeninghourscreateanattractivelocationforrestaurants.Indeed,
unlikesomeout-of-townleisureschemes,shoppingparksoftentradesuccessfullythroughouttheday.Ouranalysisshowsthattheaveragerentacrossasampleof206restaurantsonretailparksis£24.36persqft,withtheaveragesizeofunitsbeing3,450sqft.
Therapidincreaseofrestaurantoperatorsonout-of-townretailparksreflectstheirdesiretogroworganicallyandchangingconsumerhabits,wherebyeatingouthasbecomeamoreimportantpartoftheshoppingexperience.
Tesco’srecentacquisitionofGiraffemightsetatrendformorerestaurantsinout-of-townsuperstores.Thiscouldallowsupermarketstomakeuseofspacenolongerrequiredforelectricalgoods,aswellasmeetingconsumerdemandforcasualdiningwhileshopping.
Fastfoodopeningshavefallensignificantly,inpartduetosaturationincertainlocations.Itisalsobecauseofchangingconsumerpreferencesandlandlordsseekingabetterqualityofferwhichcomplementstheretailexperience–notjust‘grab&go’.Thedrive-thrumodeladdslimitedvaluetotheretailmixandisunlikelytoimprovefootfalland/ordwelltime.
The expansion of the casual dining restaurants such as Frankie & Benny’s and Nando’s into out-of-town retail parks began in earnest in 2007 – somewhat behind the traditional fast food outlets such as McDonald’s, which peaked over ten years ago.
Summer 2013OUT-OF-TOWN RETAIL AND LEISURE Occupational&investmentmarkets
6
Casual dining on retail parks
BIRMINGHAM FORT add value wITH
RECENT LETTINGS to HARVESTER AND FRANKIE & BENNY’S
*Relatesonlytoopeningssince1997,asdataisnotavailablebeforethisdate
Occupier marketTheleisureoccupationalmarketcontinuestogofromstrengthtostrength,perhapswiththeexceptionofpubsandthelatelicence/nightclubvenues.Theformerarefeelingtheeffectsofthedebtstructureandpropertylegacyissues,whilethelatterareexperiencingchangesinconsumerpreferences(AtmosphereBarsandClubshavegoneintoadministration).
Themajorcinemachains,ledbyVUE,CineworldandOdeon,continuetoseeknewopportunities,oftenincompetition.Thismightbeseenasanattempttoboosttheirmarketvalue,asmuchasadesiretogroworganically,especiallyinthecaseofOdeon.However,themainthreeplayersareexpectedtoopennewcinemasandover50newscreensinplacessuchasBroughton(Cheshire),CramlingtonandGatesheadinthenortheast,QuaysideGloucesterandNewport(SouthWales).InthecaseofCramlington,theheadlinerentis£15persqftandGatesheadat£14persqft.
Activityinthehealthandfitnesssectorispolarisingtowardsthe“value”sector,drivenbythelikesofPureGym,EasyGymandGymGroup.ThelatterwasrecentlysoldtoPhoenixEquityPartnersforjustunder£100mandexpectstoaddatleastnew20clubstotheirportfolio.FitnessFirst,whichhasrecentlyemergedfromitsCVAprocess,iscommittedtospending£20mCAPEXonrefurbishingtheir85-strongportfolio.
Continuedgrowthisalsobeingseeninthecasualdiningsector.TheRestaurantGroup,havingreportedmoreencouragingsalesgrowthfigures,isontargettoopen35newunitsin2013(including5CoasttoCoast).TGIFridayshavealsorecentlycommittedtotheoldAromaunitinBraintreeat£34persqft.Incontrasttothetraditionalpubestate,
Leisure Market
KnightFrank.com
7
thelikesofTobyCarveryandHungryHorsecontinuetoseeknewopportunities(GreeneKinghassuggesteditmaydoubletheHorseestateto400+).Slug&Lettuceisalsolookingforupto40newsites,mainlyinprimeretaillocationssuchasWestfieldandBluewater–inanacknowledgementoftheever-increasingsynergyofleisureandretail.
Investment marketWhilethemostrecentbenchmarkyieldforaprimeleisureassetremainsc.6.20%paidforBurySt.Edmundslatelastyear,marketsentimenthasimprovedin2013.Consumersappeartohaveresistedthetemptationtoreduceleisurespending–albeit“value”isparamount–whichinturnhasledtooccupationaldemandandhigherrentsforthebetterschemes.
MajorinvestorsintheleisuresectorsuchasLandSecuritieshavebeenattractedbythelengthandstabilityofincome(longleases)andrentalgrowthprospects(openmarketandindexation).Earlypurchasessuggestedagreaterdemandforin-townassetswithstrongretailsynergy,suchasCornerhouse(Nottingham)andKingsmead(Bath).However,LandSecurities’purchaseofthemajoritystakeinX-Leisureprovidesexposuretotheout-of-townmarket,aswellasanexperiencedmanagementteamandaccesstokeyoccupiers.Obsolescenceandcompetitionmaybeachallengeforsomeoftheschemes,forexamplePoolewillbethreatenedbynewin-townsupplyinBournemouth.
Wewouldexpectthatthenextdominantprimeleisurescheme(15-yearincome,withindexationandsub-£20m)willtradeat,oraround,6%.Thiswilltakeprimeleisureyieldstowithin75bpsoftheirprimeequivalentintheout-of-townretailsector.
Coffeeshopshaveshownanevengreaterappetiteforretailparks,havingonlystartedtobreakintothismarketin2006/2007.Inthelast10yearsthenumberofCostaandStarbucksunitsopeningonretailparkshasincreasedexponentially,fromoneortwounitsayear,toover20newunitsin2012.TheaveragerentpaidbyCostaandStarbucksacrossasampleof67unitsis£37persqft.
ThefoodandbeverageofferisbecominganessentialpartoftheretailexperienceintheUK.Itisnowwidelyacknowledgedthatanattractiveleisuremixleadstoincreaseddwelltime,aswellasanimprovedconsumerexperience.
0
5
10
15
20
25
No
of C
osta
/Sta
rbuc
ks u
nits
ope
ned
Tota
l num
ber o
f uni
ts
2008
2007
2006
2005
2004
2003
2009
2010
2011
2012
2013
0
20
40
60
80
100
120
140
No of Costa/Starbucksunits opened each year
Total numberof units
Figure13Growth of Costa and Starbucks on retail parks
Source:TrevorWoodAssociates
0
3
6
9
12
15
Num
ber
2008
2007
2006
2005
2004
2003
2000
2001
2002
2009
2010
2011
2012
2013
ASK, Bella Italia, Café Rouge, Caffe Uno, Chiquito,Frankie & Bennys, GBK, Harvester, Nandos,
Pizza Express, Prezzo, TGI Fridays, Zizzi
Figure12Growth of casual dining on retail parks
Source:TrevorWoodAssociates
HEADING
Leisure park Purchaser Vendor Price (£m) NIY (%)Odeon,Richmond Available Odeon 9.975 5.75JunctionLeisurePark,Llandudno U/O Prupim 8.25 6.50i-Scene,Ilford U/O Santander 19.50 8.40TheLight,Leeds Legal&General KamesCapital 91.80 n/aCineworld,Cardiff HendersonUKPUT SpectrumAsset 18.96 6.89 ManagementLarksWood,Chingford BAPensionFund Private 6.78 8.25Source:KnightFrank
KnightFrankResearchprovidesstrategicadvice,consultancyservicesandforecastingtoawiderangeofclientsworldwideincludingdevelopers,investors,fundingorganisations,corporateinstitutionsandthepublicsector.Allourclientsrecognisetheneedforexpertindependentadvicecustomisedtotheirspecificneeds.
© Knight Frank LLP 2013
Thisreportispublishedforgeneralinformationonly.Althoughhighstandardshavebeenusedinthepreparationoftheinformation,analysis,viewsandprojectionspresentedinthisreport,nolegalresponsibilitycanbeacceptedbyKnightFrankResearchorKnightFrankLLPforanylossordamageresultantfromthecontentsofthisdocument.Asageneralreport,thismaterialdoesnotnecessarilyrepresenttheviewofKnightFrankLLPinrelationtoparticularpropertiesorprojects.ReproductionofthisreportinwholeorinpartisallowedwithproperreferencetoKnightFrankResearch.
KnightFrankLLPisalimitedliabilitypartnershipregisteredinEnglandwithregisterednumberOC305934.Ourregisteredofficeis55BakerStreet,London,W1U8AN,whereyoumaylookatalistofmembers’names.
AmericasUSABermudaBrazilCanadaCaribbeanChile
AustralasiaAustraliaNewZealand
EuropeUKBelgiumCzechRepublicFranceGermanyHungaryIrelandItalyMonacoPolandPortugalRomaniaRussiaSpainTheNetherlandsUkraine
AfricaBotswanaKenyaMalawiNigeriaSouthAfricaTanzaniaUgandaZambiaZimbabwe
Asia CambodiaChinaHongKongIndiaIndonesiaMacauMalaysiaSingaporeThailandVietnam
The Gulf AbuDhabi,UAEBahrainDubai,UAEQatar
KnightFrankResearchReportsareavailableatwww.KnightFrank.com/Research
Recent market-leading retail and leisure research publications
ShoppingCentreInvestmentQuarterlyQ22013
UKRetailWarehousingReportWinter2012
CentralLondonRetailReportSummer2013
LeisureReportAutumn/Winter2012
RESEARCH
Commercial ResearchAnthea To, Associate [email protected]
Darren Yates, Partner [email protected]
Investment and Asset ManagementAndrew McGregor, Partner [email protected]
Dominic Walton, Partner [email protected]
Ellie Awford [email protected]
ValuationsRobert Gray, Partner [email protected]
Peter Youngs, Partner [email protected]
Tom Withey, Associate [email protected]