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It might seem perverse to talk optimistically about retail when £750M has just been wiped from the value of your portfolio. But British Land offered a few very tentative, heavily caveated causes for optimism for owners of retail property alongside its full-year results.
“Looking ahead, retail is likely to remain challenging as structural change continues but there are early signs on parts of our portfolio, that some of the short-term operational headwinds impacting retailers are easing,” BL Chief Executive Chris Grigg said alongside results for the 12 months to 31 March.
Bisnow drilled down to find out exactly what the company meant by these early signs of headwinds reducing, which coincided with an 11% write-down in the value of its retail portfolio to £5.6B.
British Land Chief Financial Officer Simon Carter pointed Bisnow to three metrics: footfall at the retail assets it owns, mainly shopping centres; sales of the retailers that occupy these centres; and the estimated rental value of its retail portfolio.
Footfall declined 0.9% for the full year at BL’s centres, like-for-like sales fell 1.5% and total sales fell 0.5%. But Carter explained that the falls were smaller in the second half of the year than in the first half. And in the final quarter of its financial year, the first three months of 2019, footfall and sales increased. That is the first quarterly increase for two years.
“That is off a weak comparison, because the first quarter of 2018 was so bad, but it is a data point,” Carter said. “We still expect to see administrations and CVAs coming through this year, but a lot of the weaker operators that we expected to come to market [with CVAs] have now done so, and when we look at our tenant list we might see fewer in our 2020 full-year results than in 2019 unless there is a significant deterioration in the economic outlook.”
British Land said that in 2019, 132 of its roughly 2,000 stores had been affected by administrations or CVAs, which had led to about £17M in reduced rent, against a total rent roll of £532M. About £6.5M of that list rent has been or is about to be recouped through new leases.
The other factor Carter pointed to was the company’s retail rental values. It signed or renewed leases on 1.6M SF at rents about 0.3% higher than previous levels. And it agreed rent reviews on 1.8M SF at rents 2.3% higher than previous rents. In both cases its large regional shopping malls, like Meadowhall in Sheffield, performed better than smaller local shopping centres.
Carter warned against getting too excited: “We imagine retail will remain challenging,” he said. “There are structural difficulties that are here to stay as well as cyclical pressures on the consumer.”
But at least it wasn’t all bad news.
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