The Retail Sector: An Overview

As one of the three main sectors of the commercial property market, alongside industrial and office buildings, the retail sector can offer high returns, but it all depends on the economy.

The retail industry has always been a vital part of the UK economy. In 2015 alone, it generated £340 billion in retail sales from approximately 290,315 bricks and mortar outlets.

While Britain used to be a nation of shopaholics, our consumerist nation have recently turned their backs on clothing and shoes in favour of other luxuries like eating out and holidays.

The success of retail properties is closely linked to how healthy the economy is and can be highly dependent on consumer spending and confidence.

Here's a look at the sector: 

What is the retail sector?

The retail category features shops, supermarkets, department stores, retail warehouses and whole shopping centres. Anything in between such as large chain stores also falls under this category.

Whilst London and the South-East of England tend to lead the way for commercial investment opportunities, retail property is distributed evenly across the UK, more so than industrial warehouses and offices.

What should I be looking for?

As with any property investment, location is key, particularly if the property is going to house your own business. Some factors to consider are:

Does the demographic of the area fit in with your business plan? You may not want to put a trendy clothes store in an area where the average householder is 60, for example.

What sort of traffic usually passes in the area?

Does the surrounding area fit in with your business concept?

Are there colleges, schools, office parks and hospitals to bring in more customers?

What is the competition like in the neighbourhood? Could you use this as an advantage to divert customer traffic over to you?

Leases

Retailers will generally sign long leases, typically spanning several years rather than six to 12 months, meaning that buyers and landlords often have a stable source of income.

If you are a landlord, it also means that you can review the rents you are charging on an annual basis. From a tenant point-of-view, this can cause a level of uncertainty as rental rates could change at any time.

Retail units can suffer from longer vacancy periods than most other sectors. As an owner, you may have long periods between finding tenants and you will still need to meet monthly mortgage repayments.

Things to consider 

As a sector that changes depending on the health of the economy and consumer trends, this also means it can be a volatile sector. 

Industrial analysts have suggested that the retail sector is currently a risky investment when compared to prime office space. Here are just some of the challenges:

Changing spending habits 

Retail spending fell by 1.2% last year and sales in fashion suffered a 2% lull, the steepest decline since the economic crash in 2008.

Dwindling high street footfall 

The rise in internet shopping has taken its toll on the high street. With next day delivery available to feed the current culture of instant gratification, it's become an easier and often cost effective way to shop. While shops are in trouble, online sales grew by 15% last year alone and they now account for 18% of all retail sales. 

So, if you are thinking about investing in the retail property sector, this is certainly something to take into consideration.

Business rates 

The rise in business rates has been the biggest challenge for retailers. This year the government will have collected £25bn in rates, with the retail sector paying the largest share. 

This puts bricks and mortar retailers at a significant disadvantage to online only retailers because they do not face the same level of property tax.

A new era for retail 

Retail experts are warning that approximately £3bn in profitability could be taken away from the retail sector. 

And The British Retail Consortium has estimated that there will be 8,073 fewer shops by 2020.

This leaves many small businesses having to make difficult decisions about how many shops to have in the era of online shopping. 



Melanie Luff

About the author

Melanie Luff is an in-house journalist and writes for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com as well as other industry publications.

@Be_TheBoss

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