Valuing Retail Shops.
This is a very poignant topic at the moment, often being mentioned in main stream news broadcasts. The vitality of town centres, economic growth, the external effects of the internet, all form topics of great interest. I never forget watching a young group of people window shopping in Cheltenham, they were examining training shoes. One person suddenly pulled out an i phone, scanned the bar code, and announced to the group that the same pair of shoes could be bought for less money on the internet. The order was duly placed, and the people left the shop.
In essence the occupier of the shop had acquired the property, stocked the premises, displayed the goods, and provided sales assistants to in effect sell the product for someone else who operates a similar business with a fraction of the overheads. That is one of the effects of the internet, and it is one which High Street retailers must learn to compete with, or they will wither on the vine, and in effect disappear from the High Street.
The other major factor affecting the High Street is the effects of out of town retail parks. Here there are groups of large retail sheds offering a range of goods. Because of the nature of the parks, they tend to be built with “Institution” money; you normally tend to see national retail companies taking space. The odds are on that you will see the same occupiers across a large section of the country. They rely on very well organised distribution systems for their retail goods, and the companies rely on the fact that the public can park their vehicles in car parks situated close by to the retail outlet. In essence they have made life as easy as possible for the public to shop with them. They also exploit the internet, so that each side of the company enhances the retail activities of the other.
The other main feature of the retail park is that the car park is free; there is no threat of a traffic warden putting a penalty notice on the windscreen. Abuse of the car park by the public does not normally happen, because simply there is nothing other than shops at the venue, so the visitor’s mind is concentrated onto retail matters.
Out of town retail parks must also include supermarkets. Originally these outlets simply offered food; nowadays the retail offering is much more diverse, normally you can buy anything from electrical goods, to clothing, house hold effects and plants for the garden. By buying from these outlets, you are simply buying convenience; everything is under one roof, so the retail experience can be quite quick. And yes one of the main features is again free car parking immediately outside the store, to ensure the task of carrying the goods to the car is made as easy as possible, particularly when you can borrow a supermarket trolley.
Socially our lives have also changed over the last two decades. Ever since Margaret Thatcher let the cost of housing double in one year, our lifestyles have changed. Young families often have both parents working to help afford the mortgage; children often come home from school to an empty house. Parents, tired from work, will not have time to cook a meal, so we have seen the advent of the ready cooked meal, brought off the shelf, warmed up and ready to serve from scratch in 3 minutes. You can even buy a full Christmas dinner this way, complete with Christmas pudding.
Being a surveyor, I watch the news avidly, and try and predict which way these social changes will evolve, because in essence these effects will alter the demand for High Street property, which in turn will affect their value. The High Street is in a state of flux at the moment, and is undergoing a period of evolution, where National retail chains are contracting and independent retailers are starting to venture into areas where previously you wouldn't see them. You also see large numbers of charity shops starting to open up. They of course benefit from a substantial discount on rates, which gives them a competitive edge over other retailers.
The other major factor affecting value of shops is the Void Rating legislation. Where a commercial non listed premise lies empty for more than three months, the local authority will bill full rates on the Landlord. If you have a large shop with a large rateable value, the rates payable can amount to quite a considerable liability. In effect it is a tax on capital. The overall effect of this taxation has resulted in rental values for the larger shops dropping as Landlords try and divest themselves of the liability. One good thing that has come out of this tax is the concept of pop up shops, where occupiers can set a shop up on a short term licence agreement, see whether their idea works, and if it does, they can enter into a more formal lease for a longer period of time.
When we value retail premises, we always look at the strength of covenant (occupier), see what rent they are paying, and capitalise this rental stream. The old model of always assuming that the national covenants are best is broken, and the whole ethos of valuation for retail shops needs to be reassessed. This evolution is going to take place, whether we like it or not. The high Street is a very larger employer in the area, so it will be very important for all parties, including the local council, the planning authority, Landlords and property surveyors to help and assist this evolution to take place. What is crucial is that all these parties realise how fickle retail is, the difference between success and failure can be very fine, a slight difference to the immediate environment around a shop can have a dramatic effect on the viability of the shop.
The council has to regard the town centre as being a large department store, ideally there should be free car parking so that all retail shops have a level playing field in which they can compete. That is quite a controversial statement, but once a High Street drops below a critical retail offering it will be very difficult to get retail outlets to return. Regaining momentum will be a slow process, whichever way it goes. We will continue to watch the evolution with interest. One thing is for sure, these changes will have an effect on value and as Surveyors, we will have the responsibility to gauge the value, for the various parties that need to know what their shops are worth.
This is an original blog from Tony Rowland, The Property Doctor of Timothy Lea and Griffiths
Member since: 10th July 2012
Whilst running The Best of Evesham I am also locally focussed on doing what I can for the local community in profiling what is going on.A prolific user of Social Media-We offer Social Media Management...