Vacancy rates hit new lows

There’s conflicting news on vacancy rates, so it’s worth looking at what has been happening.

Trevor Woods Associates, in their annual review of retail warehousing, shows that vacancy rates in retail parks have hit a new low.

LDC, which looks at all retailing, but especially high streets, shows that vacancy rates in the high street have been edging upwards.

Headline figures don’t tell the whole story

Needless to say these top line findings need to be examined in much more detail, because they conceal major underlying trends in the marketplace. Retailers come and go, some are expanding and some contracting. Some have disappeared altogether.

High streets switch from retail to services

And even that headline is a little simplistic. On the high street closures have outnumbered openings in banking, convenience stores and fashion. Openings have outnumbered closures in take-aways, cafés and some services.

We have often drawn attention to the shift of the population back into inner cities and people in inner cities are more likely to be flat dwellers and that brings with it different shopping habits. Flat dwellers may not have room to store a big weekly grocery shop and may not even have a car. They are more likely to shop on an as needs basis and eat out or use take-aways more.

That is evident in LDC’s finding about the numbers of take-aways and cafés opening. It does not tie in with the closures of convenience stores. But we think that what is happening there is that Tesco Express and Sainsbury’s Local set standards that other C-stores cannot match and that it is probably the smaller independents that are closing. Such outlets are more likely to be on the edge of high streets on in neighbourhood strips than in the prime sites that Tesco and Sainsbury’s target.

We know that banks are closing outlets as they persuade customers to do their banking online. But if there is a move back to shopping on the high street, then why are fashion shops closing?

High street fashion closures

This is more difficult to answer. It would be easy to point at the growth in online and it is certainly true that the young fashion retailers from Asos to boohoo are growing very fast indeed. But they are growing from a low base and their share of clothing spending is still relatively low. (See Clothing Retailers - UK, October 2016). We also estimate that while approaching 20% of clothing sales are online, most of that is through the websites of store based retailers, the pure player share is less than a third of all online sales. It would be tempting to say that younger fashion retailers have been most successful online, but the evidence does not support that. Online pure players from Amazon to Shop Direct and N Brown are much older in their targeting and take the lion’s share of pure player sales.

Another reason, and we think probably a more important one, is the performance of the retailers themselves. Retailers targeting older customers have been performing badly. Bhs and Austin Reed have closed down. Jaeger is in administration. M&S has been losing market share. In the long term the absence of Bhs and Austin Reed will enrich the high street. But the short term impact is for vacancy rates to increase.

We think that the reason for these failures is a failure to understand what older customers really want, rather than simply the growth of online retailing. As we have often argued. There’s an opportunity there.

Retail parks

The trends in out-of-town retail parks are much easier to understand. There have been closures – especially in DIY and electricals – but there has been a new group of retailers who have been expanding hard – the so-called non-food discounters – with retailers such as The Range and B&M leading the way.

But are these short term trends going to hold true in the longer term?

There are good reasons to think that these short term trends are not a good pointer for the longer term.

On the high street we have seen failed retailers finally pulling out. It is worth remembering that many of these long established companies have portfolios of freehold and long leasehold property. That means that their occupancy costs are much lower than for retailers that have developed over the last few years and it gave them a substantial degree of protection against underperformance. Their disappearance opens the way for new chains to develop – perhaps even some of the online players, such as boohoo, or Missguided, which already has four outlets.

We are not so optimistic about retail parks. If our analysis is correct that the cause for the growth in convenience retailing is the shift in population back into inner cities, then the corollary is that demand in superstores should decline. That is what is happening in food and DIY retailing. Will these inner city dwellers really want to make a regular trip out-of-town to their local Range or B&M? We are not sure and the risk is that these recently opened stores will face a future of slow decline.

A complex business

We hope that we have said enough to make one thing absolutely clear – retailing and the future of retail sites is a complex business. There are many factors involved and the risk is one of oversimplification.

Looking further out we feel sure that the high street has a great future. It must change, but that has always been the case. But more than ever it will be a centre for leisure activities as much as somewhere to buy stuff. It is not going to be killed off by online shopping – that is just not happening. The future of out-of-town shopping is less clear. We think that its future lies in being a destination centre for particular types of shopping trips. IKEA is the obvious example of what we are thinking about, but it will also have a place for slow moving bulky products such as furniture. Where we are less certain is in the future for retailers who rely on regular visitors, such as the non-food discounters.

Back to top