Shopping centre investment halves as Brexit hits investor confidence but overseas interest increases
Investment in shopping centres has faltered amid Brexit uncertainty and shaky consumer confidence, but stakeholders are optimistic about the sector’s future.
This month has been one of celebration for two British shopping centres, as Birmingham’s Grand Central marked its first birthday and Westfield Stratford City its fifth. The latter has attracted 220 million shoppers and delivered £5bn in retail sales since opening in 2011. Next month, the much-anticipated Victoria Gate will open in Leeds. On the surface of it, the shopping centre sector is booming.
However, the volume of investment in shopping centres has stalled in 2016, property consultancy Knight Frank reports in its Shopping Centres Investment Quarterly research for the third quarter of this year. It puts the blame squarely at the door the European Union referendum.
Shopping centres investment totals less than £2bn so far this year – less than half of the £4bn invested in 2015 and £5bn in 2014. And this low level of activity is expected to extend into 2017.
But there is light at the end of the tunnel. Seduced by the weakness of sterling, foreign investors are showing interest in many UK shopping centres, among them Intu Bromley, which has attracted particular attention from overseas.
And a feared collapse in consumer confidence is seemingly yet to materialise: the Office for National Statistics recorded year-on-year increases in retail sales in June (up 3.9%) and July (up 5.4%).
For investment there is a lot of doubt about the future of the financial markets
Diane Wehrle, marketing and insights director for research firm Springboard
Diane Wehrle, marketing and insights director for research firm Springboard, which monitors footfall in various retail locations, including shopping centres, confirms the data “reflects what I’m seeing first hand”.
“People are definitely more cautious than they were,” she says. “There is uncertainty for customers, but more importantly for investment there is also a lot of doubt about the future of the financial markets.”
But Wehrle believes the weaker pound will have a lasting impact: “Foreign investment is likely to continue. The pound looks likely to stay around 10 points lower than before the vote, so that should be a long-term trend.”
Others are confident shopping centres will continue to thrive because of the growing demand for experiential retail.
“For shopping centres, the variety of the retail offer, introduction of new brands, shopper events and food amenities are all factors that can be combined to enhance the destination appeal and provide a competitive edge with augmented ‘draw factor’ for consumers,” says Marie Hickey, commercial research director at property firm Savills.
Ed Cooke, chief executive of Revo (formerly shopping centre organisation BCSC), argues that the investment figures for 2016 are not as bad as they first seem.
“You have to remember that 2014 and 2015 were both bumper years for shopping centre investment, so what we’re seeing is partly just a normalisation,” he explains. “Therefore, just comparing the like-for-like figures may be slightly misleading.”
He also points to the strong investment activity of local authorities, which have been involved in eight shopping centre purchases this year. For example, Stockport council bought Merseyway Shopping Centre in April.
“Local authorities are really stepping up where maybe institutional investors are holding back and waiting,” he explains. “The very low cost of debt means real estate is an attractive investment for them at the moment.”
But Cooke agrees there are challenges ahead: “In France, Germany and Italy we have elections coming up where right-wing parties are campaigning fairly successfully on a ticket of severing ties with Europe. So Brexit may not be the only hurdle to investment in the next 12 months.”