M&S a high profile sign of a changing retail world

Another week, another major retailer announcing tough times and a programme of store closures – and this time it is the long-time bastion of the High Street, Marks & Spencer. Such a high-profile casualty of changing shopping habits, coming after such names as House of Fraser, Toys’R’Us and New Look, has led some to predict that bricks and mortar retailing is doomed.

I wrote at the beginning of the year that reports of the death of the High Street were exaggerated, and I believe this is still true. What is certain is that some High Streets may become a bit shorter, and for the commercial property investor, understanding the market is more vital than ever.

Reports of landlords having to accept unfavourable CVAs have to an extent put off investors. These agreements, in which retailers offer a (sometimes considerably) reduced rent in exchange for continued occupation, have thrown a shadow over rental growth, and this in turn has reduced investor demand for retail property.

But this threat can be mitigated with careful use of covenants, and choosing buildings which are in the right location should re-letting become necessary.

There can be no denying that times are tough for real shops, but this is not a reason to abandon the sector altogether: there are still good returns to be had from retail property investment, providing it is made in the right location, and with a real understanding of what will still attract the Great British public into our town and city centres.

Whilst market towns have been disproportionately hit by the contraction of national brands (the closure of Marks & Spencer in Great Yarmouth in 2015 was an undoubted blow, for example), these big brands are keeping their flagship stores open, which bodes well for Norwich as a retail centre which could now attract more shoppers from those very same market towns.

More important is to understand that not all bricks and mortar retailers are struggling, especially those which have grasped the concept of the retail experience – something which cannot be replicated online. Hence the proliferation of in-store coffee shops, events programmes and activities. We will increasingly see our retail centres become as much leisure spaces as somewhere simply to buy things.

Retail property investment is changing, and these changes are putting off some investors (which is in turn seeing strong demand for other types of commercial property, especially industrial units and offices). But the sector is far from dead, and those who hold their nerve and strive to understand the changing nature of retail itself will still find plenty of opportunities to make good returns.