Real Estate Research
From (zone) A to Zombie: UK retail is not always the stuff of nightmares
We believe there is hope for the much-maligned UK high street. Whilst the retail property market undeniably has areas of weakness, particularly outside of London, there are also pockets of growth.
We believe there is hope for the much-maligned UK high street. Whilst the retail property market undeniably has areas of weakness, particularly outside of London, there are also pockets of growth. Schroders has developed a new classification to help identify these opportunities in town centres. Our approach moves away from traditional regionally-based allocation strategies towards a focus on the drivers of performance. Positioning portfolios towards growth in this way should drive returns and provide for better risk management.
Structural changes in consumer behaviour require a new perspective
The standard procedure when analysing the investment performance of the town centre sector is to aggregate locations along regional boundaries. However, consumer behaviour has changed dramatically over the latest economic cycle and the resilience of high streets across the UK to developments such as the increased use of e-commerce is varied. We believe this method is now too blunt a tool to capture the nuances of performance: the high streets of Hull and Harrogate are both in Yorkshire for example, but behave very differently.
Our classification aspires to capture this diversity by segmenting town centres based upon factors underpinning their growth. The drivers of rental growth, or perhaps more accurately rental decline,are varied at town level. Our analysis suggests that performance is not strongly correlated with the size of the local population; large cities and towns have recorded below average rental growth over the past three years. Instead, we look towards locations with a point of difference supporting a solid local economy that drives footfall. This could be the result of a niche occupier base (oil in Aberdeen, R&D in Cambridge), a wealthy catchment (the affluent suburb of Solihull or in the London commuter belt), or perhaps a tourist destination such as Cheltenham or York.
Cathedrals, clones and zombies: not just your average high street
Our analysis suggests that the UK’s high streets can be arranged into a hierarchy based on their
potential to outperform the average town centre, from robust London suburbs down to zombie towns (Table 1). Towards the top end of the hierarchy regional centres such as Bath, Cambridge and Guildford are characterised by having a strong tourist trade and a lack of big city competition that makes them defensive to the internet. The local populations are often relatively wealthy and like to shop in the pleasant environments of their local high streets. The bottom of the hierarchy is home to clone and zombie towns, such as Wolverhampton, Bangor and Wigan. Both groups will have high streets dominated by generic retailers, above average vacancy rates and limited population growth. However, whilst clone towns still function as viable shopping locations, the high streets of zombie towns are often in terminal decline.
The views and opinions contained herein are those of Schroder Property Investment Management Limited and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
For professional investors and advisors only. This document is not suitable for retail clients.
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