The great divide

As the property industry begins to tread the slow path, the curve of recovery across the UK remains decidedly flat. Town centre vacancy rates, according to data from The Local Data Company, show a rise from just over 12 percent at the end of 2009 to 13 percent at the end of June 2010, a small increase that shows a slowdown from that of previous years.

What’s more interesting is the pattern that the data shows however. While London and the South are showing positive signs, retail markets in many large cities throughout the North and the Midlands are handling vacancies well over the odds. Locations such as Wolverhampton, Bradford and Doncaster have vacancy rates touching 25 percent, while Blackpool has a rate of nearly thirty percent. In contrast, only three cities in the South feature in a table of the 25 worst-hit areas in the UK, with Watford, Bristol and Reading all experiencing vacancies have half that of Blackpool.

Regional variations
This clear North – South divide in shop vacancy is indicative of the success that big centres in London and the South East are now enjoying post-recession. Further north however, the higher rates reflect changes in local economies anchored by the public sector. And with the decline already in place, once circumstances such as government cuts and VAT rises take full effect, these statistics may well worsen.

Sadly, based on half-year figures, the data suggests many areas are getting worse rather than better. Of the 63 large centres analysed, ten centres showed an improvement over the six months to the half-year, and only eight of these showed a consistent improvement over the year. The improvers were largely southern as well, being with Bath, Guildford, Central London and Cardiff doing well. Only Liverpool bucked the trend as showing improvement comparable to that of the southern locations. While it is too early to describe these centres as “coming out of recession”, their retail markets are most defiantly getting better.

As far as medium-sized centres are concerned, a similar picture emerges. Of the 400 centres analysed, 73 improved over the first half of the year – 18 percent of the total, but only eight percent had lower vacancy rates year on year. Among these 73 centres, 25 have improved consistently over the past year. With one exception – Grantham – these are all in the southern half of the country and include Home Counties stalwarts such as Henley and Romsey, London centres such as Clapham and Putney, and Welsh centres such as Swansea and Pontypridd.

This reinforces the picture that, with few exceptions, improvements in retail markets are being led by London and the wider South East. Many large and medium-sized centres in the Midlands and North are yet to see a material improvement in vacancy. Given the importance of public sector employment in these areas, it is hard to see past the fact that, in the face of a shrinking state, these centres are going to struggle to fill their High Streets for the foreseeable future.

Sectors
The statistics on sales volumes show comparison retailers doing significantly better than convenience stores. Therefore, it seems oddly ironic that it is the convenience sector taking the lead on opening new stores. The supermarket, Iceland will continue to expand on its current financial year and has set out plans to open up to thirty stores. The company enjoyed double digit growth in sales after opening 74 outlets in the year to the end of March, 51 of which were on former Woolworths sites.

Meanwhile, Asda’s ongoing purchase of 193 Netto stores will further expand its smaller store format. The plan aims to convert a large proportion of Netto’s stores to a small format as soon as possible, with the average Netto store size coming in at just 8,500 sq ft, the deal is currently under scrutiny by the Office of Fair Trading.

As a year, 2010 has seen some high profile closures. Video games retailer GAME announced in April that it would reduce the number of its stores from 677 to 550 by the end of 2013. This follows the earlier closure of a number of stores, along with 25 Debenhams concessions.

Mark Bowles, property director at HMV Group outlined his concern at figures and the current situation for retailers: “The continuing trend of increasing vacancy rates is a cause for considerable concern, and will have a significant effect on the vitality of town centres across the UK. While some retailers have sought to consolidate their operations to a smaller number of larger stores which are more cost effective to run, the majority of high street retailers are not in the position to be able to do this”.

Moving forward
The likely implications of any rebalancing of the economy away from consumer spending is likely to place further emphasis on convenience over comparison spending going forward. And recent positive sales volume figures exceeded expectations in the retail markets, giving credence to the view that the slump is coming to an end.

So far this year we have avoided any large-scale retail casualties such as Woolworths or Borders, but it is evident to see that many retailers are continuing to struggle, often in the face of increasingly strong competition from the online sales front.

As Liz Peace, chief executive of the British Property Federation affirmed: “Filling empty shops will never be easy or quick. Both banks and landlords need to show a proactive approach to managing property, while local authorities have a key role to play in promoting flexibility and innovation in areas suffering from a high number of vacancies.”

“Of course, the problem is exacerbated by the continued imposition of empty property rates, which has forced landlords to pay money in tax they could have used to make their property more attractive to tenants.”

The future therefore is equally cursed and blessed. While vacancies may decline, Government policy and factors effecting the wider economy are currently painting a substantially gloomy picture for an industry struggling to get off its knees. Meanwhile, the big convenience retailers like Iceland and Asda continue to make inroads out of the weak market and value retailers like Poundland are also seeing improvement. The key to a healthy market will be in maintaining this positive news to the end of the year and into 2011.