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Jones Lang LaSalle predicts outlook for UK economy and implications for retail property market at North West seminar

The gap widens between winners and losers

Manchester, 2nd May 2012 - Jones Lang LaSalle held its North West Breakfast seminar at The Lowry Hotel in Manchester today.  Speakers at the event included Andrew Burrell, head of forecasting who outlined the prospects UK Economic Outlook and the Implications for Retail Markets; Ben Parker from the firm’s Northern Retail Agency team who examined the high street and shopping centre markets and Edward Blood, who gave an overview of the out-of-town and supermarkets sector.

Andrew Burrell said “Retail trends regionally are slightly weaker than UK average with sales growth in the North West lagging behind national rates. Although the growth gap is relatively small, it is unlikely to close given the weak fundamentals for high street across the UK, as consumers continue to face the strong headwinds created by 2008 financial crisis.”

He continued: “Quantitative easing and historically low interest rates in particular have helped provide a cushion for the consumers and will be maintained. But the current malaise cannot last forever and there are already some tentative signs of returning confidence, although progress is likely to be slow over the next year or so.  While downside risks will dictate in the short term; the outlook should slowly improve and normal retail growth rates resume after 2013.”

Speaking about the High Street market Ben Parker, Associate Director in Jones Lang LaSalle’s Northern Retail Agency team, added: “According to our research, up to 50% of existing high street leases are due to expire by 2015 as we are coming to the end of the 1980s 25 year leases, the 1990s 10 year leases and sub-10 year leases of the last decade. We have not yet seen the true effect of the shift in demand on our retail landscape, but the next 24 months are likely to see a swift and dramatic ‘playing out’ of these structural changes.

“The 2015 lease expiry spike will allow retailers to rationalise their portfolios and effectively walk away from leases via natural wastage.  We will continue to see more divergence between winners and losers, however we believe that this will only increase the polarisation between prime vs. secondary locations. "

Looking at Retail Warehouse Parks, Edward Blood, Director, Capital Markets in Jones Lang LaSalle’s Manchester office, said: “In the first quarter of this year there were a limited number of retail warehouse transactions with UK volumes totalling circa £150 million compared to the same period last year when approximately £500 million was transacted. Certain properties are over valued with elements of over renting together with covenant risk and capital expenditure requirements which is impacting on valuations and the level of deals.

“The outlook for the occupational market indicates that future rental growth looks patchy and there is potential for further retailer failures. In the investment market, pricing on secondary retail parks with poor occupational demand continues to drift and opportunities to buy ‘prime’ will remain limited.  We anticipate those properties with deliverable asset management will remain the ‘Holy Grail' for investors.”