Warning: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Investment Institute
Alternatives

Retail is not dead and regionally dominant shopping centres offer an attractive value play


Executive summary:

  • The consumer has taken control of the retail relationship which is putting pressure on retailers’ margins, as they face increased competition and a need to invest in a full reconfiguration of their supply chain to offer an “Omni-channel” distribution model
  • This pressure on retailers’ margins is likely to limit rental value growth prospects over the short-term, as traditional bricks and mortar retailers’ space consolidations leave more voids than online pure play retailers establishing a physical presence absorb
  • In our view, regionally dominant shopping centres and second-tier tourist-oriented city high streets represent an attractive “value play” for investors, as we feel the entire sector is being tainted by the same doomsday brush despite the fact that the operational performance of these schemes remains strong
  • The sector is not without risks, as highlighted by the continued raft of retailer failures and bankruptcies which could be exacerbated if an economic downturn materialised over the short term. In addition, for those schemes that remain viable and in demand, the retailer-landlord relationship has to respond to a shorter retail life cycle and increased ambiguity across ultimate sales channels
  • Ultimately, we do not think the developed world will stop consuming but rather that the retail landscape is evolving and store footprints are changing to be focused on the highest footfall locations where retailers can engage with consumers to showcase their brand
  • In addition, the rising global middle class and subsequent increase in tourism should continue to support growth in the Factory Outlet Centre (FOC) model, which offers investors a defensive late-cycle play, as it combines the experience, discount and luxury offer being demanded by consumers

The retail market is under pressure as it responds and adapts to the disruptive force of the internet on its traditional business model. However, retail is far from dead as consumers will continue to shop – only in a different manner – and brands which are able to adapt to the new “Omni-channel”1  retail model will end up in a stronger financial position, making them viable credit tenants for retail landlords. Furthermore, this increasingly complex and new retail environment emphasises physical retail formats that cater to either convenience or the retail experience. The latter having become increasingly important to shoppers. During this transition phase, retailers would be extremely vulnerable to an economic recession but we feel the sector has fallen so far out of favour – with limited differentiation by scheme quality – so as to provide an attractive entry point for long-term investors able to cherry pick the top, dominant locations with high footfall which successful retailers will continue to target for occupancy.

  • 4oCcT21uaS1jaGFubmVs4oCdIGNvbWJpbmVzIHBoeXNpY2FsIGFuZCBvbmxpbmUgY29tbWVyY2UsIGJ1dCBhbHNvIGluY3JlYXNpbmdseSBpbnZvbHZlcyBzb2NpYWwgbWVkaWEgYXMgYSBuZXcgdHJhZGluZyBjaGFubmVs

    Not for Retail distribution:

    This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. 

    Are you an IFA or other Professional Investor ?

    Are you a financial advisor, institutional, or other professional investor?

    This section is for professional investors only. You need to confirm that you have the required investment knowledge and experience to view this content. This includes understanding the risks associated with investment products, and any other required qualifications according to the rules of your jurisdiction.