British Land Boosts Rental Growth Guidance for Retail Parks Amidst Challenging Property Market
LONDON, Sept 19 – Retail parks are proving to be a rare bright spot in the UK’s struggling property market. British Land, a leading UK real estate investment trust, has announced an upgrade in its rental growth guidance for these shopping developments. The company now expects rental growth to range from 3% to 5% for the year ending in March 2024, up from the previous estimate of 2% to 4%. This positive outlook is largely attributed to strong demand from popular retailers such as Primark, Sports Direct, and discount retailer B&M.
In the five months leading up to August 30, British Land reported receiving 15% more in rents than initially anticipated, amounting to a substantial £3.5 billion ($4.8 billion). This surge in demand can be attributed to a decline in rental prices. Analysts estimate that average retail rents have fallen by approximately one-third since their peak in 2015. For retailers, this decrease in rental costs means they can now allocate only 10% of their sales towards leasing space, compared to the historical average of around 15%.
Apart from the favorable rental prices, retail parks also offer an advantage for e-commerce businesses. Customers can conveniently drop off and pick up their orders at these locations. This convenience sets retail parks apart from traditional high streets, where high business rates and soaring rents have led to the closure of thousands of shops. The Centre for Retail Research reported that in 2021, over 17,000 shops shut down on high streets and other areas, marking a nearly 50% increase from the previous year.
While British Land has experienced success in its retail park segment, it faces challenges due to its heavy reliance on office properties. Approximately two-thirds of the company’s property portfolio comprises offices, which may experience a decline in demand as remote work and flexible office spaces become more prevalent. The recent 2.5% rise in British Land’s shares suggests that investors are cautiously optimistic about the company’s prospects, indicating that growing retail parks alone may not be sufficient to instill confidence.
As the UK property market continues to navigate through uncertain times, British Land’s upgrade in rental growth guidance for retail parks showcases a glimmer of hope. The strong demand from popular retailers and the decline in rental prices have contributed to the company’s success in this segment. However, the challenges posed by the office property market accentuate the need for British Land to diversify its portfolio and adapt to changing market trends. Investors will be closely monitoring the company’s ability to navigate these challenges while capitalizing on the opportunities presented by the thriving retail park segment.
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More detail via Reuters here… ( Image via Reuters )