Read our Q3 review and Q4 2023 forecast for the world of retail property. Despite challenges of rising interest rates, retail has proven surprisingly stable
The first half of 2023 saw the retail property sector continue upon a steady course. The stability was surprising in some respects as wider economic uncertainty grew and interest rates kept being raised by the Bank of England.
Now, interest rates have been frozen twice consecutively, making this a good time to look at the sector anew and analyse the state of the retail market. We are in the midst of challenging times and retail is at the forefront of the rising cost of living and the effects of poor weather.
However, despite these challenges, retail remains resilient. There hasn’t been a sharp deterioration in the sector despite some negative expectations. Indeed, consumer sentiment has continued the recovery begun at the start of 2023. The GFK Consumer Sentiment Index is currently at -25 – a substantial rise from its level of -47 in January this year.
The Retail Think Tank’s (RTT) Retail Health Index predicts some more short-term disruption over the rest of 2023, citing the aforementioned high interest rates as a major factor that will affect people’s spending power.
With that in mind, retailers can take some concrete steps to limit the effects of the uncertainty and give themselves the best chance of dealing with conditions which are far from ideal. The RTT recommends a fast and radical response may be required. This will require sharp focus, understanding customers and getting your costs right.
One of the major ways to get your business in the right place is to ensure that you have the ideal premises to secure customers, brand recognition and a baseline cost that fits into your budget.
Demand for the best retail space for rent which meets those criteria is rising in response. Footfall has risen since the pandemic and this has increased demand on the high street from both occupiers and customers. Shoppers are out and about again, and the international tourist trade is in full swing once more which is returning some vitality to the high streets.
The UK vacancy rate – which has been growing for some time – began to fall again in Q3 2023 as the overall demand for space rose. It is now at just 2.9% on average across the UK, and 5.3% in shopping centres. In London, the vacancy rate is even lower at 2.6%.
This fall has been attributed to several factors including luxury brands upgrading to new stores and experiential retailers moving into space that used to be occupied by more traditional vendors.
This has been matched by a general reduction in rents across the sector as landlords do their best to attract retailers and other occupiers. Between the growing demand and lower rents, this may be an exceptional opportunity for retailers to secure a premium property in a high footfall location.
That is especially the case with Christmas fast approaching. This is always the most important time of year for retailers and data from Mastercard shows that it could be a bumper year for bricks and mortar stores.
A 3.7% year-on-year overall increase in physical retail sales is expected as UK consumers enter the festive period with a sense of cautious optimism. While all areas of retail are expected to feel the benefit of this, certain sectors such as clothing (5.3%) and jewellery (5.1%) are forecast to perform even more strongly.
Want to make the most of the upcoming festive season? FI Real Estate has a range of premium high street and shopping centre retail units available to rent today that could be perfect for your business. Browse our available retail space to rent and get in touch with the team today by clicking here.