One fifth of shopping centre floorspace being let by the four biggest real estate investment trusts is to retailers in administration or with shrinking sales, according to new analysis by UBS.
Analysing data from 50 shopping centres owned by British Land, Landsec, Hammerson and Intu, UBS found 20% of total shopping centre floorspace is occupied by retailers already carrying out a CVA, in administration or suffering from declining sales growth.
UBS said this impact was “significantly higher than the companies’ reported rent impacted by CVAs, which ranges from 2.7% to 4.4% of rental income”.
The investment bank said this posed “long-term risks to the retail REITs, including lower rental growth prospects and higher vacancy” and could lead to a “vicious circle” of store closures, leading to “less pleasant” shopping experiences and further reduced foot traffic.
Hammerson and Intu were more exposed than British Land and Landsec. UBS found 66% of Hammerson and 54% of Intu mall spaces are occupied by fashion retailers and department stores, which are “likely the most heavily disrupted by ecommerce”.
UBS said its analysis supported its “already cautious view of the retail property subsector” and reiterated its note from December that there might be between a 20% and 25% capital decline to come for shopping centre portfolios over the next three years.
UBS head of European real estate Osmaan Malik said the effect of CVAs in retail was the uncertainty they create and the lack of investment.
“The big unknown is the hits to the rental income. All of the retailers could decide ‘we’re going to cut our rents, or we are going to move out of the centres that we don’t want to be in,’ so it’s very difficult to judge,” he said.
The data came from 1,477 retailers and 5,666 stores across 50 shopping centres.
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