Economic gloom has put an end to cast-iron returns from investing in UK shopping centers, and the sector may never fully recover its reputation as offering the greatest safety in real estate. Surging petrol prices and a faltering economy have started to choke cash-poor shoppers and many of Britain's biggest retailers are lobbying hard for relief from quarterly advance rental payments to stave off possible bankruptcy. “The retail property market is far from a happy place right now,” said Keith Steventon, head of research at Atisreal, the European property services unit of BNP Paribas. “Rents are no longer going up, values are falling steadily and landlords are having to offer better and better incentives to sign up or hold onto tenants,” he said. Turmoil in London's office market has monopolised newspaper headlines and investor attention since a vintage bull run in UK commercial property ended a year ago. But retail property is now looking equally perilous, no longer offering cautious buyers refuge from the savage troughs that blight Britain's real estate market. “June to June, capital values of UK offices have fallen 18.9 percent, while retail warehouses have fallen 22.6 percent and shopping centers have fallen 19.1 percent,” Steventon said. Retailers are suffering their worst summer since 2005, the British Retail Consortium said, with June sales growth falling by 0.4 percentage points to 2.1 percent. And June's 3.8 percent inflation figure was the ugliest in 11 years, heaping pressure on already stretched retail margins. Retailers, many of whom had signed up to upwards only rent reviews, are now negotiating lower rents and monthly rather than three monthly payment terms, putting pressure on retail property owners.. “Retailers are not all as suicidal as some say ... the landlord is keener to concede more flexible leases on lower rents than have vacant floorspace,” said Stephen Springham, a partner at property consultancy King Sturge. Oversupply is another threat. Rental growth is already tumbling, but data from Cushman & Wakefield shows a colossal 1.25 million square metres-plus of new space slated to open until the end of next year.
