The retail market, as a whole, continues to perform positively. With employment levels continuing to rise and an increase in real wage growth consumers are benefitting from more disposable income. There is also more stability following the General Election, accepting that retailers will need to adapt to changes announced in the post-election budget. Whilst the introduction of the National Living Wage has seen mixed reactions from retailers, on balance, it appears most view this as a progressive measure for workers and one which will feed through to retailers through increased consumer spend. Possible changes to Sunday trading hours in England & Wales are also expected to deliver benefits to retailers, accepting there is a need to ensure any legislation ensures Local Authorities do not pick and choose which areas of their catchment will be eligible for extended trade hours.
The economic upturn, which has, at last, surpassed pre-recession levels, continues to be good for the retail market. This is evidenced not only through strong trading and profit results from Zara and Next but the continued entry of new retailers to the UK. In this issue of Drapers Property Supplement we focus on one new entrant, Pep & Co, a discount fashion chain, who recently opened their first store and will trade from 50 UK stores by the end of 2015.
In this issue we also discuss the continued success of UK outlet centres, which have evolved from largely clearance centres for surplus inventory to vibrant and exciting destinations where people visit for a luxury retail experience. Flagship centres such as Bicester Village and Cheshire Oaks are also popular tourist destinations where people will travel from a distance to purchase out of season luxury and aspirational goods. People visit them not only to shop but to have a great day out, which can include going for a meal or attending a fashion show.
As retailers continue to capitalise on a now truly global retail market we explore Australia, which has seen an influx of foreign retailers in past few years, including from the UK Top Shop, River Island and Reiss, who are all looking to capitalise on its strong economy, young demographic and global tourist market. Sydney’s prime shopping district is now one of the most expensive in the world and with H&M recently opening one of their largest global stores in Melbourne the country is cementing its position as a strategically important region for international retailers.
As we look forward, we continue to see a positive market ahead for UK retailers and a continued need for retailers to compete at a global level as they seek to develop their brands.
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The next generation of luxury customers is currently spending less on luxury products than older consumers, but they are likely to purchase higher volumes of more affordable luxury goods in future, and will prefer to use the newest technology to carry out their purchases. It is therefore important for luxury retailers to understand the next generation of customers in order to use their purchasing power and to increase brand loyalty prior to the moment when they are able to afford their high-end products. We look firstly at the characteristics of this new generation of tech-savvy shoppers, and secondly at how luxury brands must respond to their needs.
In this report we look at how economic, political, and technological forces will affect property markets in 2018 and beyond. This report is the most comprehensive sector-by-sector outlook in the industry, from flexible office space to e-commerce, and from data centres to built-to-rent. There’s a comprehensive supplement on Brexit, plus a special feature on ‘proptech’.
• A benign global economic environment, supported by a European recovery, though the UK is starting to fall behind.
• Subdued consumer spending and business investment arising from a weak currency, inflation and Brexit uncertainty.
• Risks of an overshoot in US interest rates could dampen UK growth in 2019 or 2020, though increasing clarity over Brexit will help the UK bounce back.
• Rebounding strongly from the uncertainty in the immediate aftermath of the EU referendum, the UK property investment market has seen a surprise surge in transaction volumes, particularly from overseas investors. Investment volumes are likely to remain robust at around £60bn for 2018 as a whole.
• We expect substantial political noise and turbulence arising from Brexit issues throughout 2018.
• Although agreement on Brexit withdrawal issues has taken time to secure, these issues are not likely to have significant impact on real estate. But attention will now progress to the much more important question of future trade and migration arrangements.
• EU trade access is likely to be worse than the UK has now (perhaps somewhere between the Canadian and Swiss deals with the EU), though only to the extent that migration controls are tighter than they are now.
• Our sectoral picks include industrial and logistics property, especially in urban areas and the so-called ‘beds sectors’ (residential, student accommodation, hotels and healthcare).These sectors either exhibit non-cyclical characteristics, have very significant demand and supply mismatches, or (in the case of hotels) will benefit disproportionately from the weaker pound.
Please feel free to contact us if you would like to discuss any aspect of the report.
The worm has turned very quickly in 2017; at the start of the year Europe was seen as the focus of political risk, successive positive electoral outcomes and a strengthening economy have seen investors’ concerns evaporate to be replaced by enthusiasm. With GDP forecast comfortably BOV 2%IN 2017, significantly ahead of recent performance, inflation modest and the occupancy cycle supportive of rental growth, it is no surprise that commercial real estate investment volumes have strengthened throughout the year.
The growth of online retail is forecast to continue, reaching 20% of total retail sales by
2020. This will increase the demand for efficient fulfilment and lead to several interesting
innovations that will change the logistics industry
• We believe the five most influential innovations in the retail logistics industry will be:
o Predictive ordering – using the Internet of things to place orders on behalf of the
o 3D printing – printing products at industrial units and at home
o Your home as a store – retailers deliver a selection of items for you to peruse before
sending back what you don’t want e may see more demand for facilities in as yet
underutilised and remote areas
o Personal outsourcing – employing individuals to handle some of the tasks we currently
o Copying and ‘cherry picking’ innovation – emulating other businesses and their approach
to new ideas as opposed to developing as a standalone entity
• Deciding which technologies and innovations to adopt will be as important as being at the
forefront of research and development
• Implications for property:
o Logistics providers will be able to plan more efficiently and won’t need to be as focused
on being as close to the consumer as possible
o We may see more demand for facilities in as yet underutilised and remote areas
o As a result of improvements in 3D printing fulfilment will no longer just be seen as the
delivery of an item via traditional methods
o A small number of businesses will dictate the future of the logistics industry
In this edition we cover the latest information and activity within the retail sector covering high streets, Central London, shopping centres, retail parks, supermarkets and retail logistics. We also have a special feature on food and beverage and the future outlook for UK department stores.