2022 FORECAST
Retail revisited
2022 is expected to be another challenging year for the retail sector. While the outlook for retail spending is positive – 1.3% growth powered by an accumulation of household savings and an increase in consumer confidence into the new year - for retailers there are a raft of challenges across the majority of the sector.
As the significant government support diminishes, including the likely resolution of the moratorium on evictions, retailers are seeing a combination of increased wages, driven by the 6% hike in the National Living Wage, higher energy costs, as well as supply chain problems which are all contributing to the pressures on the physical retail sector.
The likelihood of business failures during the course of the year will put even further upward pressure on vacancy rates within the sector – and are forecast to reach 16.9% by the end of the year – even if the rate of increase is expected to slow down. Consumer confidence, which has been declining since June 2021, is expected to recover into 2022.
VACANCY RATE BY LOCATION TYPE
Retail Parks
One area where we are seeing particular strength is in the out-of-town markets. 2021 has seen strong occupational and investor demand, and this is likely to continue well into 2022. This has been driven by the presence of popular big-box operators, increased demand from discount retailers and drive-thru ‘restaurants’, combined with consumers’ preference to shop in outdoor locations and being able to travel to them in their own vehicles.
Data from Springboard shows that footfall in retail parks is only 3% lower than 2019 levels compared to a 20% fall in shopping centres. British Land announced that during 2021, footfall and sales at its retail parks were at 96% and 99% of pre-pandemic levels. Vacancy rates remain significantly lower (11.5%) than in Shopping Centres (19.4%) whilst investment volumes remain strong. Property investment volumes have reached over £2.4 billion in 2021, which is the highest level since 2017.
Demand will remain high for good quality assets in 2022 although there may start to be a cooling of demand after such sharp yield compression during 2021. For well-located parks, however, perceived short-term risk is likely to be outweighed in some cases by the potential long-term residual value for other uses cases.
RETAIL PARK INVESTMENT
New formats
While there will continue to be rationalisation and company failures, we are seeing an increase in demand from new and emerging sectors, as well as a repositioning of offers – even in the first half of 2021 over 22,000 retail units opened in the UK.
Growth in the number of independent retailers is stimulating demand. There were over 800 net new independent retail entrants in the first half of 2021, and this is a trend that is increasing. There are recent examples of landlords incentivising small business owners to lease units from them. For example, LGIM is taking an innovative approach, as part of a trial, to attract people back into physical stores. In April 2021 it launched a "curated shopping street" as part of its blueprint for its retail assets. Located in Poole, it offered free rent and business rates, for a two-year period, to 10 independent retailers (ranging from fishmongers to a zero waste grocery stores). During 2022 it is also planning to launch a market on the street for up to 15 vendors.
LGIM also own the nearby Dolphin Shopping Centre, and this scheme is part of their investment plan to increase footfall to the area. In 2022 the scheme will be extended to other centres in their estate including the Grosvenor in Northampton, the Overgate in Dundee and the Beacon in Eastbourne.
2022 will see an increase in the number of checkout-free stores, which Amazon launched in London in 2021. The retailer has committed to expanding its 6-store estate to 60 in strategic UK locations across the UK during 2022. Both Aldi and Tesco are trialling this format in London and are likely to roll out across the UK if it proves successful. There may even be further advances of this technology trialled during the year. In France, Carrefour have recently launched ‘Carrefour Flash’ which is a convenience store that combines integrated sensors on the shelves with cameras in the ceiling. Unlike the Amazon format, customers do not need to download an app and are free to access the store without having to pass through a gate.
There were over 800 net new independent retail entrants in the first half of 2021, and this is a trend that is increasing.
Ikea has acquired the former Topshop flagship store on a prime site in Oxford Street for £378 million, one of the busiest shopping locations in Europe.
Personalised experience
Successful retailers have always been at the forefront of innovation due to their ability to digest vast amounts of customer data to profile consumer behaviour. This profiling will become even more sophisticated in 2022 as organisations seek to deliver a more personalised shopping experience.
By combining customer data with more advanced methods and technologies, including artificial intelligence and augmented reality, retailers will be able to predict consumers’ needs as well as suggest products and content to consumers at exactly the right moment of consideration. In the fashion industry this will extend to selecting items that are a perfect fit for consumers, based on the data they have with the retailer which will both increase sales and lock-in loyalty for brands that truly know their customers.
Elsewhere, this focus will drive diversity of offerings. Selfridges have recently converted an area of the store into a wedding venue that can accommodate up to 20 guests. SituLive has launched a 7,500 sq ft store in Westfield, London, giving visitors the opportunity to trial innovative tech products related to fitness, sleep and transport in dedicated areas of the store that are designed to reflect the different rooms in a home (for example in a kitchen or in a lounge setting).
Ikea has acquired the former Topshop flagship store on a prime site in Oxford Street for £378 million, one of the busiest shopping locations in Europe, citing it as ‘a good fit for their future strategy’. Although only two floors of the building will remain as retail space, this is not a typical location for a furniture retailer but is an indicator as to how shopping destinations will continue to evolve to cater for consumer demand.