A new survey forecasts that retailers could well be celebrating their best performance in 27 years next month – news that could have beneficial implications for the commercial property industry.
According to the Confederation of British Industry (CBI), the combination of low inflation and a buoyant labour market have elevated household spending power, thereby allowing consumers to express a greater level of confidence when it comes to making in-store purchases.
In a survey of 134 firms, of which 63 were retailers, the CBI found that this aided growth in both retail sales and supplier orders, with the former experiencing the best performance since April 2007 and the latter seeing the fastest pace of growth since December 2010.
Director of economics at the CBI, Rain Newton-Smith, points out that this will particularly benefit national chains seeking to pad their financial bases following the recession.
She says; “Retailers will be encouraged to see growth in sales and orders on the high street bounding ahead.
“Low inflation, which we expect to remain below 1% for the rest of the year, has given household incomes a much-needed boost and greater spending power.
“Overall the outlook is bright for firms on the high street, but challenges still remain, especially for food retailers, who are still feeling the heat of stiff price competition from new entrants to the sector.”
Ms Newton-Smith’s last point may be particularly prevalent for the commercial property market in the coming months, as supermarkets have continued to struggle against the influx of imported discount brands and have therefore been forced to rein back on new store opening programmes.
As a result, the CBI’s report found that intentions by brands to invest in business growth within the retail sector remain in negative figures, garnering a -10 per cent reading when compared to the previous 12 months.
This, while not surprising, could be seen to be very bad news but is in fact entirely dependent upon outside investors and developers, as land previously earmarked for supermarket space will presumably soon be placed upon the market. Should this space be used instead for leisure or retail destinations, this would allow for strong regional growth within local economies whilst providing additional supply for retail units in areas of high demand.
Furthermore, the boom in retail sales may also benefit owners of secondary shopping centres or alternative retail destinations, which continue to lag behind prime developments in terms of growth in rental value.
Should this occur, the demand for retail destinations by both overseas and domestic investors may even increase further, increasing activity in the retail property market and allowing dominant investment firms already active in the sector to capitalise further on their assets.
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