Living with the New Normal - Deloitte United States...below book value we believe the New Normal has...
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Living with the New Normal Update January 2019 One year after the release of our report on the UK secondary shopping centre market, ‘Living with the New Normal’, we have analysed and commented on the most recent developments. The pressure on the UK retail market has continued throughout 2018 and found its latest peak in December 2018, the worst Christmas for UK retail in a decade. With 125 retailers failing in 2018, the impact on the store closures is significant with 4,402 net closures in H1 2018 alone. These closures are significantly impacting secondary shopping centres, the high vacancy rates have caused both number of transactions on the investment market and prices per square foot paid to stabilise at levels far below the 2015 peak. • Prices per square foot have plummeted from ~£300 (2015) to little more than £150 in 2017 and have remained there in 2018. • It is worth noting that the 2018 metric is skewed by the sale of Shop Stop in Clapham Junction. Removing this transaction from the dataset brings the average price per square foot paid down to £137. • The Nicholsons Shopping Centre in Maidenhead provides a case study of what has happened in this market over the last 10 years. Sold for £85m in 2007 and then sold on for £37m in 2015, it went into receivership in 2018, and is now in talks to be sold for £25m, a 32% discount to the 2015 price. We anticipate a similar fate for several more of these assets over the next 12 – 24 months. Transaction volume by year Label indicates no. of shopping centres transacted 17 17 11 28 36 21 37 68 27 26 33 Source: Deloitte research Sales volume Sales volume Price per sqft Price per sqft £0.0B £0.5B £1.0B £1.5B £2.0B £2.5B £3.0B £3.5B 52 £0 £50 £100 £150 £200 £250 £300 £350 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Living with the New Normal Update January 2019
Transcript of Living with the New Normal - Deloitte United States...below book value we believe the New Normal has...
Living with the New NormalUpdate January 2019
One year after the release of our report on the UK secondary shopping centre market, ‘Living with the New Normal’, we have analysed and commented on the most recent developments. The pressure on the UK retail market has continued throughout 2018 and found its latest peak in December 2018, the worst Christmas for UK retail in a decade. With 125 retailers failing in 2018, the impact on the store closures is significant with 4,402 net closures in H1 2018 alone. These closures are significantly impacting secondary shopping centres, the high vacancy rates have caused both number of transactions on the investment market and prices per square foot paid to stabilise at levels far below the 2015 peak.
• Prices per square foot have plummeted from ~£300 (2015) to little more than £150 in 2017 and have remained there in 2018.
• It is worth noting that the 2018 metric is skewed by the sale of Shop Stop in Clapham Junction. Removing this transaction from the dataset brings the average price per square foot paid down to £137.
• The Nicholsons Shopping Centre in Maidenhead provides a case study of what has happened in this market over the last 10 years. Sold for £85m in 2007 and then sold on for £37m in 2015, it went into receivership in 2018, and is now in talks to be sold for £25m, a 32% discount to the 2015 price. We anticipate a similar fate for several more of these assets over the next 12 – 24 months.
Transaction volume by yearLabel indicates no. of shopping centres transacted
17 17
11
28
36
21
37
68
27 26 33
Source: Deloitte research
Sales volume
Sale
s vo
lum
e
Price per sqft
Pric
e pe
r sqf
t
£0.0B
£0.5B
£1.0B
£1.5B
£2.0B
£2.5B
£3.0B
£3.5B
52
£0
£50
£100
£150
£200
£250
£300
£350
201820172016201520142013201220112010200920082007
Living with the New Normal Update January 2019
This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.
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With RICS instructing valuers to be “aware of the potential for significant changes in value” and the largest listed landlords now trading significantly below book value we believe the New Normal has only just started.
• In H1 2018 store openings dropped 2.1% compared to H1 2017, store closures increased by 16.9% in the same period to reach 24,205 closures.
• H1 2018 showed net closures (closures less new openings) of 4,402 units across the country. In 2017, Deloitte estimated 27,000 net closures between 2018 and 2020, the H1 2018 actuals show that if this number increases over the coming months, the estimate from 2017 might be far exceeded.
• In recent years it has been leisure locations that have kept many of these assets afloat, but this category too has seen net closures in excess of 1,000 units in H1 2018 alone.
• Retail administrations rise for the second consecutive year while large retail CVAs experienced a seven-fold increase. 125 retailers went into administration in 2018, up 6% from 2017; within this number, 26 were large retailers, compared to 17 in 2017.
• The increasing pressure on the retail sector is also hitting retailers with significant store portfolios, as such the number of stores affected is increasing significantly. Actuals to August 2018 show almost 2,000 stores affected by these failures, full year numbers are likely to exceed 4,000.
Net change in number of units by retail classification, 2014 to 2018
Source: LDC
Net
cha
nge
in u
nits
-2.5K
-2K
-1.5K
-1K
-0.5K
0K
0.5K
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H1 2018H1 2017H1 2016H1 2015H1 2014
Comparison Convenience Leisure Service
Key contactsFor more information or to discuss any of the issues covered, please reach out to us.
Daniel ButtersLead Partner – Restructuring020 7303 [email protected]
Phil BowersLead Partner – Real Estate Restructuring020 7007 [email protected]
Matthew MawhinneyAssistant DirectorRestructuring020 7007 [email protected]
Nigel ShiltonLead Partner – Real Estate020 7007 [email protected]
Constantin LeebManagerReal Estate020 7007 [email protected]
Retail companies failing vs number of stores affected
2018 data includes actuals to August (source: LDC) and Deloitte prediction August – December
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201820172016201520142013201220112010200920082007
Companies failing Stores Affected Prediction Aug-Dec 2018
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