Retail Asset Optimisation

ADDRESSING THE COST CONUNDRUM

RETAIL ASSET OPTIMISATION FOR TOMORROW

INPUT COSTS

RUNNING COSTS

ASSET VALUE

Against this backdrop of structural change in the retail sector, cyclical pressures have become more acute.

It is acknowledged that budgetary discipline has always been important, but during the previous cycle undertaking capital works was financially easier. As capitalisation rates continued to compress, capital expenditure programmes could be more readily written off against the increasing value of the asset. Asset owners are now facing a reverse paradigm, where assets are becoming increasingly expensive to operate as well as potentially requiring significant capital works at a time when debt is expensive and asset values are falling. The only mitigating factor being that, in general, rents have stabilised and in some instances are increasing which is helping partially offset this decline in value.

It may be tempting to do nothing, or at least put off capital expenditure programmes until they are considered essential. Planning works in this way, however, is reactive rather than proactive and runs the risk of doing too little too late. Instead, a forward-looking schedule of capital improvements should be developed to demonstrate a commitment, both to tenants and customers, to keep the asset relevant to the local community. This does not always involve large scale works, but can be small-scale projects such as improving signage, parking flows, landscaping and integrated community artwork. All contribute to the fabric of the asset.

• RETAIL

• OPERATIONAL EXPENDITURE HAS RISEN 10-20%. • PRIME RENTS IN EUROPE HAVE FALLEN BY -9%

• COST OF DEBT HAS RISEN 350-400BPS • CAPITAL EXPENDITURE HAS RISEN 20-25%

CAPITALISATION RATES IN MAJOR MARKETS HAVE SOFTENED BY 73BPS ON AVERAGE SINCE Q1 2022

CUSHMAN & WAKEFIELD

ON AVERAGE OVER LAST 5 YEARS

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