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Demand for high street retail space falls as online grows

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Demand for high street retail space is falling as growth in online sales far outpaces bricks and mortar growth.

The latest RICS (Royal Institution of Chartered Surveyors) UK commercial market survey predicts a fall in retail rental values as demand falls and the amount of unoccupied space rises. It found that in the last four months fewer businesses looked to rent retail premises (on balance, -13), leading to more empty shops. Demand fell most sharply in London, while interest in space was merely flat in Wales and the Midlands, the areas which showed the best performance. More surveyors (on balance, +22) expect rents to fall as a result.

Simon Rubinsohn, RICS chief economist, said: “The end of 2012 was yet another incredibly tough period for the high street, brought to a head by the recent news of HMV, Blockbuster and Jessops who’ve dominated the headlines for all the wrong reasons. Sadly, this downbeat picture doesn’t look like changing any time soon with demand for retail space continuing to drop and more empty premises set to blight the country’s town centres.”

The fall comes at a time when online sales are growing much faster than high street sales. The latest figures from the British Retail Consortium (BRC) showed total UK retail sales grew by 1.5% in December 2012, while like-for-like growth barely held steady at 0.3% growth. At the same time, internet sales put in their best performance of the year, with year-on-year growth of 17.8%.

Jon Copestake, retail analyst at the Economist Intelligence Unit, said today that ecommerce was having a clear and predictable effect on demand for retail space. “Given the recent raft of administrations on a high street already struggling with record vacancies it is little surprise that demand is falling,” he said.

“As supply grows from businesses failure, the appetite to fill the gap is subdued by the increasing prevalence of online channels. At the moment investing in bricks and mortar represents a greater risk than ecommerce as a route to market. Those looking for a silver lining may be disappointed. The format has proven itself to be structurally overweight, although, pop-up-shops from start-ups or pure play retailers like Amazon could stem the flow of vacancies, as could the increasing focus on convenience formats from supermarkets.”

Craig Powell, surveyor at Holloway, Iliffe & Mitchell in Southampton, told the Guardian that landlords had to give retailers a reason to stay in larger shops, in the light of growing online sales. “Christmas 2012 was another record for online sales and landlords have to consider rent payment terms to incentivise larger retailers to retain their existing number and size of stores instead of moving to smaller formats that simply allow customers to collect online purchases,” he said.

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