| 26/01/2010 | Secondary retail assets face long road to recovery   One in every five shopping centres in the UK is at risk of defaulting on its loans according to a retail property industry report published today. BCSC’s Secondary Centres research establishes the magnitude of the issues facing shopping centre owners and managers – with an estimated £10.1 billion* worth of centres at risk - equating to 43% of all shopping centre transactions in the past five years. The research, undertaken by DTZ, reveals the growing polarisation between the performance of prime and secondary retail property, which has been exacerbated by the economic downturn. In spite of recent growth in capital values, the report concludes that collaborative action is required by all stakeholders to prevent secondary centres from falling into further decline. BCSC’s Secondary Centres Taskforce - a group of cross-sector partners from the property, retail and banking sectors – commissioned the research to investigate the extent of the problems facing secondary and tertiary centres, the approaches being adopted to manage these assets and the action needed to facilitate their improved performance. This included face-to-face interviews with a number of banks, property companies, appointed administrators and retailers. All parties interviewed said that the four main detrimental factors contributing to secondary centres falling into administration or breaching loan payments, as: a lack of investment poor asset management failure of a number of national retailers poor due diligence at the time of purchase. In spite of these challenges, lenders involved in the research stated that they are taking a pragmatic approach in their willingness to extend credit for capital improvements and working with borrowers to ensure administration is a last resort. However, the establishment of a flexible asset management plan was identified as an important success factor and a key condition of further lending. Neil Varnham, BCSC President, comments: “Shopping places are often the lifeblood of local economies and communities – particularly in our smaller towns and cities. The failure of these centres can be detrimental to all parties involved – consumers, local authorities, owners, retailers and banks and requires a collaborative, long-term view from all parties involved. “Banks will only fund investments that make economic sense and this will ultimately drive their lending strategy. The role for a good asset manager is crucial to ensure that their investment is being managed effectively, bringing an understanding of retailers and consumers to attract new tenants, drive footfall and sales. There is a role for the retail property industry to play by addressing the perceived skills gap in asset management expertise.” Mark Williams, Chair of the Taskforce and Director at DTZ, adds: “Over and above the difficulties faced as a result of the dramatic falls in capital values and rental income, secondary and tertiary centres will need to respond to longer-term structural changes in the industry. These include the competition posed by the larger, prime centres and the fundamental shift taking place in the requirements of modern retailers.” “Continued industry engagement with Government will also be important, particularly in areas such as empty property rates relief, and the relaxation of planning and CPO laws to help speed redevelopment. There is also an important role for local authorities - which should be encouraged to engage with stakeholders at the earliest opportunity to help proactively manage a shopping centre facing problems as part of an overall town centre asset management plan.” The findings of BCSC’s research - Secondary Centres: The Impact of the Recession on Secondary Shopping Centres - is being presented today at the President’s Lunch at BAFTA. The issues raised in the report will be debated at a seminar to be held in the spring. The report is available in the publications section of the bcsc website www.bcsc.org.uk/publications for more information. * based on asset values at the time of purchase | back to top