Average retail property rents declined just over 8% in 2009 says Cushman & Wakefield. In its latest quarterly update on the UK market, the property adviser says that although rents declined by a further 1% in the final quarter of 2009, the rate of softening has begun to ease and the market should return to stability in 2010.
Most of the UK's major cities saw rental falls in Q4, although London has bucked the trend throughout the economic downturn and rents have increased to new highs on Bond Street recording a 9.7% rise. Whilst London's office markets have borne the brunt of the financial crisis, the capital's retail market has benefited from a continued influx of newcomers chasing a limited supply of good quality space. A weak sterling has also boosted London's appeal to European tourists who have continued to spend in the capital's shops.
Occupier activity increased towards the year-end, although availability remains at just over 10% - down from around 12% in October. However, this may be distorted by the number of short-term/temporary lettings normally seen in the run up to Christmas.
Landlords continue to be more realistic about rents and lease terms and are agreeing healthier incentive packages to achieve lettings. This has led to an increase in activity, with many tenants now recognizing that there are some good deals available, notably when lengthy rent frees are combined with early break clauses.
Darren Yates, associate in Cushman & Wakefield's European research group, said: "Select parts of the UK retail market such as London continue to outperform and, encouragingly, there are signs in some areas where demand is beginning to exceed supply. Whilst a strong demand-led recovery is not on the cards for the immediate future, the retail sector is at least more stable than 12 months ago."
Peter Mace, head of central London retail, Cushman & Wakefield, said: "The West End of London has proved to be remarkably resilient. The weak pound has helped maintain a high level of tourism and well publicised failures such as Woolworths, Stylo Barratt, Zavvi and USC had very limited exposure to the city. Feedback from retailers is that their London stores are trading well and, as a result there is very limited supply of prime stock. By way of example, there are only two shops actively being marketed in Regent Street and New Bond Street, four in the prime western section of Oxford Street and none in the prime northern section of Sloane Street. Even availability in the secondary market in the West End is very limited with thoroughfares such as Jermyn Street, Marylebone High Street, Conduit Street, Brook Street, Mount Street etc having nil or only one or two shops available."
The picture was gloomier elsewhere in the UK with prime rents dropping 25% in Cardiff and 19.1% in Edinburgh for example. Birmingham was fairly typical of a number of locations in the West Midlands recording a 14.1% fall.
Robert Alston, retail partner in Birmingham, Cushman & Wakefield: "The major city centres in the Midlands are still attracting reasonably strong demand from retailers but unquestionably rents have fallen quite significantly and incentives required are still considerable. In the second and third division towns there is fairly limited demand and where there is interest, landlords are having to be fairly creative to get deals done offering shorter lease terms, healthy incentives and in some cases turnover only deals. Whilst the majority of retailers are still relatively cautious, certain others do see this as an opportunity to acquire space on affordable and attractive terms and are taking advantage of market conditions."
The story was mixed in the south east of England and also in London's outer boroughs where the performance of local high streets was in contrast to prime West End streets.
James Merrett, associate, London & South East retail, Cushman & Wakefield, said: "Quality town and city centres in the south of England without a dominant shopping centre have generally stood up well. Rental levels in locatio