Why You Might Not Want to Invest in Retail Real Estate

These numbers are for the UK but they illustrate a trend that is going on in all of the advanced countries:

*£6bn – Online spending in the UK in 2004

*£23bn – Online spending in the UK 2010

*£1.3 bn – Level of m-commerce in the UK 2011

*£19bn – predicted level of m-commerce in 2019

*15,000 – reduction in town centre stores between 2000-2009

* 6.5% fall in number of town centre shops by 2014

We’re going through a structural change in the whole retail market, one that should be making retail real estate itself less valuable.

Another set of numbers is that roughly 10% of UK retail sales now take place online: and roughly 10% of UK retail space is now empty. That’s long term empty, not just the short term emptiness caused by the turnover in tenants.

Yes, of course, it’s always going to be true that there will be deals in the market. Certain locations aren’t going to go out of style, there may well be further moves from High Street locations to out of town developments and so on. But we have come to a natural break point in the development of the market.

It’s long been a standard assumption that as incomes rise then we’ll all buy more things. More things being bought means the need for more places where things can be bought. But it’s that connection that is now being broken by the online retailing.

Another way of putting this is that yes, we sure are at the bottom of a real estate cycle (it’s far too depressing to think that we’re not at the bottom, are still on the way down) but we’ve also got this structural change in the specific retail segment. It’s entirely possible that as and when the domestic and commercial real estate markets perk up again that the retail part of it will be left behind. For over and above the cyclical effects we have that structural effect impacting on the retail segment.