Sharp reversal in retail sector sentiment

Markets

REFIRE has reported several times throughout this year on the cautious approach being taken to shopping centre investment by some of the more experienced hands in the sector, such as Deutsche Euroshop, who pulled out of planned acquisitions at least twice this year at a late hour. At the end of the last quarter the clouds seemed to be lifting – but hopes of an optimistic end-of-year outlook were dashed with the publication of the latest International Council of Shopping Centres (ICSC) monthly ICSC Euro-Shop Index.

The latest reading shows a sharp deterioration in sentiment in the sector, bringing confidence down to about the same level as this time last year and the lowest since February 2012.

Despite the festive season being well underway, both sales and footfall contracted in November , now standing at levels seen last in February 2012. Rents are also a cause of concern amongst shopping centre executives, with the lowest level of confidence in rent sustainability recorded since the ICSC’s Euro-Shop Index started in March 2011.

According to Sarah Banfield, ICSC’s Europe-based Senior Research Analyst said: “This could well be a symptom of the evolving landlord/tenant relationship, where retailers feel they are in a better position to renegotiate their leases, particularly in secondary centres where the landlord is under pressure to maintain occupancy levels.”

Indeed, occupancy was the one area to experience growth in November, probably a reflection of the seasonal trend of temporary ‘pop-up shops’ to make the most of the gift-buying period.

Banfield added: “November’s survey of shopping centre executives reveals a disappointing reversal in the recent trend of improving industry sentiment. It all points to the fragile nature of the European retail market as rising unemployment (which reached a new high of 11.7% in the Eurozone in October), and tough fiscal policies continue to dampen consumer confidence and discourage retail expenditure.”

”Although occupancy is holding up well, the post-festive season may see vacancy levels rise once more as temporary occupiers exit and other retailers take stock of their seasonal performance, especially as it appears that they will need to discount heavily in order to attract spend.”