Land Securities today pledged to reimagine retail as it emerges from the Covid-19 pandemic and lockdowns. Online, it says, has become the “primary growth channel” in retail during a pandemic that has turbocharged existing trends – and that is set to continue. Now, it says, the role of retail property must change to fit an omnichannel context at a time when its value is falling fast. That means that there will be fewer shops – and that rents will be lower. Insolvency proceedings from CVAs and restructurings to administrations, it warns, are likely to increase as government support reduces. That will make the space for new brands and digitally native propositions to take space instead, and help to improve longer-term prospects.
“This does not, however, signal the end for retail property,” says Mark Allan, chief executive of Land Securities, which develops and operates both office and retail developments, as it reports full-year figures today. “Instead, it means that its role must change in an omnichannel world to offer something sufficiently compelling – either to be complementary to online or to offer something that cannot be easily replicated online. It is this reality that undermines our ‘reimagine retail’ vision and we are confident that, with effective execution, we have a retail business that can thrive longer term.”
Its outlets, says Allan, already offer an experience that “isn’t easily replicated online” and it expects them to perform strongly in the recovery. But, it adds, “The picture for shopping centres remains more complex. Over the year, the value of our regional shopping centres fell on average 38.2% to £1.0bn, taking the decline from the peak to approximately 60%. The realities remain that going forward there will be fewer physical retail stores, rents will be lower and, in order to remain relevant, shopping centres will need to offer a combination of attributes that are either complementary to online or not easily replicated online.”
But in the longer-term, it says that a faster downward correction in rents and values gives the sector the opportunity to recalibrate. Land Securities plans to grow through urban opportunities - building its portfolio of suburban shopping centres, while moving full out of hotels, leisure and retail parks in order to invest in other areas.
The update came as Land Securities today reported widening losses in full-year results. In the year to March 31, the business has reported a 39% decline in revenue profit to £251m. At the bottom line it reported a pre-tax loss of £1.4bn – widening from a loss of £837m in the previous year. Net rental income fell to £405m from £583m a year earlier while bad debt provision has expanded to an “unprecedented” £127m – equivalent to 38% of retail and leisure rents for the year. That’s on top of £23m provided in last year’s figures. Challenges for the business include the effect of the pandemic on central London, where 68% of its portfolio, by value, is located and footfall, both to shops and to offices, is likely to take time to recover.
Land Securities chief executive Mark Allan says the results “clearly reflect the challenges caused by both the pandemic and the associated restrictions”, with the “vast majority” of the Land Securities portfolio “either closed or substantially unoccupied for over half of the year”.
Now, he says the recovery phase is underway. “Government action to support the economy was swift and the speed of the ongoing vaccination programme impressive,” he says. "As a result, there is the real prospect of a strong consumption-led recovery across the remainder of 2021 and 2022. Like many people, I was encouraged to see the relish with which people returned to experience in-person shopping as the easing of lockdown measures began in April, and early indicators are that this excitement is driving a strong return to our retail assets. With this week marking the next milestone in the government’s roadmap out of lockdown we expect to see even more.”