The UK is currently undergoing a wave of retail-led town-centre redevelopment. Driving this development is economic growth that is creating demand for additional retail floorspace, and the planning system that is preventing this development from being located out of town. The market is also benefiting from the requirements of retailers for units with large floorspace where they can produce higher average returns on their sales and investments than in smaller retail units.
The shopping-centre market has three main sectors:
covered shopping centres, which incorporate in-town and out-of-town schemes
retail parks
factory- and designer-outlet centres.
The companies operating in, managing and owning the shopping centres tend to come from a variety of sectors, including property development, investment trusts, finance houses, development and management companies and specialist operators. Some of the specialist companies operate in just one sector of the market; others operate in two; and several of the larger finance houses invest in all three market sectors.
Covered shopping centres are the largest sector of the market, although planning restrictions have limited the development of the out-of-town segment. Despite this, a number of the leading out-of-town centres have undergone major refurbishments and most continue to attract up to 30 million visitors a year. In-town shopping-centre retail developments (which are favoured by the planning authorities)
The amount of letting area in UK retail parks has increased steadily since 2001 due to the opening of new centres and the continued expansion and phased development of others. The market has benefited from strong demand from retailers for space in the larger retail parks and in many of the popular locations; the amount of rental space remaining vacant is minimal. Investment by property companies and property developers is strong in this sector and the sale, purchase and realignment of their retail park portfolios is ongoing.
Factory-outlet centres are a relatively recent addition to the UK retail environment, although they have quickly proved to be popular. Many of these outlets offer permanent discounts of 30% to 70% off top branded items. The additional attractions provided by the centres — such as restaurants, public houses, museums and other leisure facilities — have increased their overall appeal to shoppers. However, the expansion of these centres is restricted by the same planning regulations that limit the development of the out-of-town shopping centres and this has caused one of the leading owners to exit the UK market.
The UK is one of the leading EU countries in terms of shopping-centre space. Interest from institutions and property companies remains strong for further developments. High occupancy rates and high retail rents in the leading centres, plus annual rent reviews in many of the other centres, are helping to sustain investor interest and support the development of many new major centres.
Key Note forecasts that a substantial amount of additional shopping-centre retail space will be added to the market between 2006 and 2010. All sectors of the market will benefit from this expansion, although some sectors are viewed as having more growth potential than others
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