British Land this week spelt out the £14.5m cost of retailer CVAs and administrations on its business over the last 18 months - and said retailers were reassessing downwards how much space, and what kind of space, they need, as store-based shopping is revolutionised by the internet.
“Structural and cyclical headwinds have continued to play out,” it said in its half-year report this week, “and there have been further CVAs and administrations from retailers with more challenged models, particularly those with high leverage who have been slow to adapt to rapid structural change. These retailers have closed stores to focus on smaller networks generally at a lower overall rent.”
The property developer and operator, which is going through a process of reshaping its business towards “a smaller, more focused retail business”, said while it had been hit as retailers reshaped their store estates, it had already generated £5.5m in re-lettings or renegotiations. It has also sold, or has under offer, retail assets worth £634m over the last year – including a portfolio of Debenhams stores first bought in 2005, along with superstores worth £995m and leisure properties worth £196m.
Retailers including House of Fraser, New Look, Carpetright and Mothercare have all negotiated CVAs (compulsory voluntary agreements) with landlords over the last year as they look to reshape their store estates in the light of the way that shoppers now want to buy.
Behind this and other retail changes, British Land sees an internet-driven revolution in the way that people shop. “The role of the store is changing, causing retailers to reassess the type and amount of physical retail space they need,” said British Land in its results statement. It added: “We know that the type of space that will remain successful has changed and reduced, and we expect this to continue. In this context we remain ruthlessly focused on the long-term and are reshaping our portfolio to deliver a small overall retail business focused on assets that can succeed.” Among the changes in shopping behaviour that it detects is the growing use of click and collect. It says about 5% of visitors to its centres use this service on any given day. “The importance of networks which provide this logistical support and also at as a showroom is clear, but these trends continue to evolve.”
The update came as British Land reported underlying half-year profits of £169m in the six months to September 30, down by 14.6% from £168m a year earlier. The value of its portfolio has also fallen by 1.9% in the latest half-year, pulled down by retail, where valuations have fallen by 4.5%. That contrasts with office properties – up by 0.7%. The £634m of retail properties that it is has sold or are under offer are among properties worth £1.2bn disposed of during the last 18 months.
Chris Grigg, chief executive, said: “Looking forward, demand for the highest quality London office space is expected to continue, but we remain alert to potential uncertainties as the Brexit process unfolds. We expect retail to remain challenging in both the occupier and investment markets as the impact of long-term structural change is compounded by short-term headwinds. Against this backdrop, our strategy is clear, consistent and focused on the long term.”