Jul 30, 2012 10:00 BST
Supermarkets gain market share as shopping centre development stallsJul 30, 2012 10:00 BST
New shopping centre development has stalled in the UK, limiting opportunities for store group retailers to expand and resulting in loss of non-food market share to supermarkets, according to the latest research from leading global property advisor CBRE.
Shopping centre space under construction has fallen from almost 20 percent of the overall retail pipeline at the onset of the credit crisis in 2007 to just 6 percent today. Shopping centre construction is currently at just 25 percent of the levels recorded in the first half of 2007 and continues to contract with new completions set to provide 3.33 million square foot of space in 2012 - down from 13.02 million sq ft immediately prior to the credit crisis.
The overall shopping centre development pipeline is also starting to contract significantly, four years after the onset of the economic downturn. The total area of shopping centre space planned for construction fell by almost 10% over the last six months. This is notable because, unlike the early 1990s recession when shopping centre pipeline levels fell for almost five years, levels have remained reasonably constant this time around. Developers have tended to keep schemes in play, rolling completion dates forward to future years and waiting for the economy to improve: now the weakest schemes are beginning to fall by the wayside.
The rapid growth of supermarkets being constructed, which began following the economic crisis in 2007, has continued to grow rapidly. This has increased the amount of non-food space operated by supermarkets and increased market-share at the expense of shopping centres and retail parks. Supermarket development in the UK has grown by a startling 57% since September 2007 and now accounts for 38% of all shops in the development pipeline, up from 25% four years ago.
Jonathan De Mello, Head of Retail Consultancy, CBRE, commented:
“This dearth of new development is causing increasing problems for store groups dependent upon speculative shopping centre development to meet their expansion targets. Opportunities for the big stores in particular look set to remain thin on the ground for a very lengthy time.
“This problem is exacerbated by the increasing amount of non-food space being added to the grocery mix - traditional trading locations are losing market share to supermarkets. The scale of market-share shift to date has already been huge and looks set to carry on growing - the longer the speculative development downturn lasts, the greater the market-share loss to grocers.
“However, while the shopping centre pipeline has all but dried up, this presents opportunities for savvy investors to focus on improving existing schemes, or buying schemes in areas that will see growth in population, affluence, or consumer spending going forwards. Proactive asset management has never been more important in the current climate, and the best investors are constantly looking to improve their schemes from a tenant mix, marketing and environmental perspective, in order to secure market share over the competition.”
Mark Disney, Executive Director Shopping Centre Development & Leasing, CBRE, commented:
“Shopping centre construction activity has now bottomed. Any significant upturn is now contingent on a sustained economic upturn: that does not appear to be on the cards in the medium term. Demand from retailers for anchor stores, MSU’s and well configured shops in major markets continue to drive developers to respond. The challenges of obtaining finance and the developers’ attitude to risk, however, mean that it is taking longer to make appraisals work to the point that work can start on site. Against these constraints it will be the best conceived schemes in the strongest markets that appear first.
“The tough economic climate has led to a number of developments to be shelved but it is the structural changes being seen in the retailing world that mean that they may never reappear in the pipeline even in better times.”
Notes to editors:
The analysis presented relates to shopping centres of at least 4,645 square metres (50,000 sq ft) gross