Why retail parks are set to prosper post pandemic
The internet has transformed our shopping habits. More and more of us make many of our purchases online – a trend accelerated by the Covid-19 pandemic. Today, with almost anything deliverable to our doors, convenience is king.
But providing that convenience requires much more than a warehouse and a fleet of delivery vans. Increasingly, shoppers are demanding an ‘omnichannel’ experience. While they want to order from home or from the office, they often prefer to pick up those orders in store, so that, for example, they can try clothes on before taking them home. And they expect the same convenience in returning goods.
And although the pandemic has increased the penetration of ecommerce, the direction of travel is still towards omnichannel rather than online-only. People don’t always want to wait, even for next-day deliveries, and, with lockdown over, they won’t always be in to receive deliveries. And even with social distancing, some shopping is just more satisfying when it’s done in store.
We’ve seen this reluctance to abandon physical stores play out over the course of the Covid pandemic. In 2020, the proportion of online shopping shot up from around 22% to around 35%. But in 2021, that figure has fallen back and looks set to end the year at around 28%. As restrictions have been eased, customers have started to return to the shops.
According to property agent Savills, by 2022, when the growth of online shopping is expected to level out, more than 80% of sales will still involve physical stores. But our changing habits mean that many of those stores will not be located in city centres. Meanwhile, retailers have to consider not only how best to run balance their online and offline businesses, but also the costs of storage, distribution and returns. For shoppers and shop-owners alike, out-of-town retail parks provide a solution.
These retail parks offer retailers a wealth of attractions for owners and tenants alike. Their lease lengths tend to be good, and the flexibility of their units allows for easy upsizing and downsizing as business conditions changes. As a result, vacancy rates tend to be low. And retail parks are poised to benefit from the shift to online shopping.
That’s because they are perfectly placed to provide the joined-up, omnichannel experience that customers want. Out-of-town locations allow commuters to collect or drop off items on their way home. And, as conditions to normalise, attractive retail parks with cafés, restaurants and other diversions offer a full ‘experience’ for families at the weekend.
Compared with city-centre shopping centres, retail parks have experienced a much more rapid recovery in footfall after lockdowns, according to research Savills. In part, this is because they allow shopping to be done safely, partially outdoors and with good social distance.
It helps that many retail-park tenants, including supermarkets and DIY stores, were classified as essential service providers during lockdown. Against just 27% for retailers overall, some 61% of retail-park floorspace was designated as essential. This may have helped to catalyse the change to a ‘new normal’ in which retail parks are the go-to choice for physical shopping.
As they adjust to this ‘new normal’, major retailers are increasingly recognising the appeal of retail parks. Many are amping up their out-of-town presence by opening new outlets or expanding their existing floorspace.
One reason for this surge is recognition that retail parks are often the most convenient hubs for ‘click and collect’ – whereby shoppers buy online but pick up in store. According to Savills, click-and-collect sales are expected to rise by 45.8% by 2024, reaching £9.8 billion and outpacing pure online sales with an annual growth rate of 7.1% against 5.8%.
From the retailer’s perspective, both ‘click and collect’ and returns bring customers off the internet and into the stores, where they can be tempted to make additional purchases. In 2019, almost 40% of customers bought an item in store while picking up their online order, according to Savills. And out-of-town locations are ideal for ‘last-mile’ delivery and the storage of goods bought online. So many retailers are taking advantage of retail parks’ strategic locations to maximise the efficiency of their deliveries.
It’s this combination of online and offline that makes retail parks such an attractive investment. We foresee a future in which the major chains have fewer stores on the high street and much better representation in retail parks. ‘Bricks’ and ‘clicks’ will work together to deliver the consumer’s preferred experience – and retail parks will be pivotal in facilitating that.
Not all retail parks are equal, however. At Ediston, our investment approach is highly selective. We avoid more than 60% of the retail-park subsector because we’re only interested in parks that dominate their local area. Nor are we interested in ‘over-rented’ properties – where rents are too high and are will be difficult to sustain when leases expire. Instead, we favour parks with affordable rents and the potential for us to improve returns through intensive asset management. We aim to get under the skin of each property we own so that we can secure and improve the income streams for our investors.
Our conviction in the right retail parks is so strong that we’re even building one of our own. Construction is close to completion at our Haddington site, outside Edinburgh. The Haddington Retail Park is already 97% pre-let to tenants including Aldi, Home Bargains, The Food Warehouse, Costa Coffee and Euro Garages.
Retail isn’t dying – far from it. But it is evolving – a process hastened by the pandemic. We aim to harness that evolution on our investors’ behalf. As e-commerce evolves into omnichannel, we’re confident that the best retail parks have the locations, facilities and flexibility to prosper in the post-Covid world.
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