Retail rents in UK could fall up to 20%

Retail investors were given a gloomy picture of the state of the market, after a report by UK property services firm, Colliers CRE, suggested that not only could real rents fall up to 20 percent over the next three years, but that capital values could also fall another 10 percent.

Rents for UK high street property could fall between 15 and 20 percent over the next three years, according to property services firm Colliers CRE.

The firm’s Midsummer Retail Report predicted the retail property sector would see some of its worst total returns since 1981, when the industry benchmark, the Investment Property Databank (IPD), first began publishing property data.

The report also predicted an abrupt halt to the development of shopping centers, while capital values for retail property in general were likely to fall another 10 percent. They have already fallen by around 25 percent from a peak in spring 2007.

Negative retail trading confidence is having an effect on occupier demand, with retailers issuing profit warnings in the first quarter of the year, according to the report. Some chains have been cutting staff and have already announced store closures. Marks & Spencer, the British High Street retailer regarded as the bellweather of the industry, last week issued a profits warning saying the consumer downturn was likely to be deeper and last longer than expected.

The Colliers report however offered some hope for investors, predicting the bottom of the market to be the reached by summer or early autumn next year.

Despite falling values and grim predictions, private equity firms have continued to acquire retail property. In June, the Carlyle Group exchanged contracts to acquire three shopping malls from listed UK fund manager Capital & Regional at a reduction to their valuation three months previously. The US group, which closed Carlyle Europe Real Estate Partners III on €2.2 billion ($3.4 billion) at the start of June, is buying shopping centers in Chester, Epsom and Edgware.