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22 March 2012

Invest in Lewisham, Wood Green and Uxbridge retail for the lowest risk

London suburbs including Lewisham, Wood Green and Uxbridge are the least risky towns in the UK to invest in retail, according to BNP Paribas Real Estate’s latest research.

The leading international real estate adviser has published a Retail Risk report which, instead of looking at rents as an indicator, analyses the health of the UK’s towns ‘within a weakening retail economy’ to form an index of risk averse and more risky towns which aims to show investors where they should be investing their money in retail.

The index was compiled through detailed assessment of retailer financial health, how many of the ‘unhealthy retailers’ are in the top 100 towns analysed, supported by analysis of the number of vacant units and charity shops in the towns.

Ian Parish, head of retail at BNP Paribas Real Estate, comments: ‘Although we have created an index of most and least risky retail towns, this does not mean that those towns most at risk are doomed - there are opportunities at each end of the scale. It is important for investors to know where to invest and where, perhaps, they need to manage their portfolios or change their strategies. The results haven’t been easy to predict. In fact, some of the results have been rather surprising. Other than an obvious north-south divide in line with affluence, the actual towns themselves are not necessarily the ones we thought we’d be identifying at the beginning of the process and the report goes to show that even the most dominant towns and cities are not immune to risk.’

The least at risk suburbs and towns were identified as Lewisham, Wood Green, Uxbridge, Harrow, Truro, Sutton, Colchester, Inverness, Peterborough and Southport.

The most at risk towns and cities were identified as Bradford, Derby, Wolverhampton, Southampton, Hull, Sheffield, Swindon, Warrington, Stockport and Nottingham.

The national picture showed that overall10% of units in the top 100 locations pose very high risk of collapse or closure which means that occupiers of these units are not covering their basic operational costs, 20% of units are either charity shops or vacant and a further 17% of units occupied by retailers which pose ‘high’ risk. Only just over half of the units analysed are occupied by retailers considered ‘secure’.

The research also found that local shopping played an important part of the results as consumers still need to shop for essentials.

Parish continues: ‘with petrol prices remaining high, cash strapped consumers tend to stay local for their essentials. This means that those towns with local convenience stores as well as a good central retail offer – such as Lewisham - did surprisingly well in our index, demonstrating that everyday shopping still has an important role to play in the make up of our towns.’

The report was put together in response to the continuing trend for investors seeking long-term secure income from their assets. The retail sector has gone through some fundamental changes in the last few years, such as the consumer squeeze, the permanent change in retail strategy following the last recession and structural changes such as the growth of online shopping, and investors, as well as retailers are finding that they need to adapt their strategies.

Paul Griffiths, head of investment at BNP Paribas Real Estate, comments: ‘With transformational changes taking place in the retail sector means investors now have to think differently about the way they assess risk.  Our report challenges traditional thinking and there are some unusual results, backed up by detailed assessment of all the factors. Furthermore, while we have identified locations that pose the greatest risk overall to investors, even in the most at risk towns there are thriving areas, usually forming the prime and most dominant part of the wider retail offer. So there are clear investment opportunities in each of the top 100 towns we’ve assessed – if you know where to look.’

Other findings highlighted in the research include: large scale retail development adversely affects the high street due to shifting centres of retail gravity within a town centre; a rise in stalled retail-led developments have led to uncertainty affecting the high streets negatively; that isolated locations – such as Inverness - with sensible supply were lower risk; and that even towns with strong competition can succeed if they have a point of difference and serve a purpose for local communities.

Griffiths concludes: ‘Investors can use this retail risk index as a tool to support their existing investment approach to taking decisions considering both the macro and local market drivers of returns. The index also helps to identify locations with the biggest potential of re-letting and supports buy, sell and hold strategies.’

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