There has been a string of recent high-street failures in the UK. House of Fraser, Maplin, Poundworld and Toys R Us have all fallen into administration in the last year and other chains such as Mothercare have closed stores as part of agreements with creditors.
As consumers move purchases online, physical retail has suffered despite growth in overall sales. Retailers have also had to contend with rising wage and tax bills. In the UK, companies in financial difficulties can avail of a Scheme of Arrangement. For retail chains in financial difficulty, this usually involves looking at their current portfolio of leases. It is generally agreed that many of these leases are too high with typical terms of 25 years or more and upward only rent reviews every five years.
As retail chains face up to the shift in consumer spending habits away from the high street, there is likely to be many more such schemes availed of. The result is UK landlords are struggling to offload billions of pounds’ worth of shopping centres and retail parks, as the crisis in bricks-and-mortar retail ripples into the property sector.
It is estimated that at least £2.5bn of retail properties are currently on the market, based on information supplied by agents, while some property companies privately estimate the total available to buy as high as £5bn.
Right now, it appears that on one wants to own a shopping centre or retail park. However, there seems to be a large gap between the value the seller wants to get for their properties and the price that buyers are willing to pay.
Many sellers are nervous of putting their properties on the open market because they do not want to have it priced. Earlier this year, a potential £500 million sale of a share of the Bluewater Shopping Centre in Kent to the French Insurer, AXA fell though.
These problems have affected investor sentiment which has turned sour on the sector. Listed property companies are selling off some retail assets and many private equity landlords are also looking at getting out of the market.