Britain’s high streets may be having a tough time but one sector of the retail market is enjoying a surge in development activity, according to a new report by property consultants CBRE.
More than 4.5m sq ft of grocery store floorspace is in the development pipeline in the West Midlands, nearly 11 per cent of total planned grocery floorspace in the UK.
Only Scotland, the South East and the North West have more grocery store floorspace planned, with 7.42m sq ft, 5.14m sq ft and 4.82m sq ft respectively.
Nationally, grocery floorspace in the development pipeline has grown by 54 per cent
(15.6m sq ft) since the onset of the credit crisis in 2007 and is currently the only retail sector seeing a sustained increase in development activity.
Leading the charge is Tesco, which has a 30.5 per cent share of the grocery market, followed by ASDA (17.3 per cent), Sainsbury’s (16.1 per cent) and Morrisons (11.8 per cent). Other multiples, including co-ops, account for 22 per cent of the market, with independents taking a 2.3 per cent share.
Grocery now accounts for 36 per cent (44.4m sq ft) of all shops development pipeline, up from 25 per cent four years ago.
Alan Klein, director and head of regional lease consultancy at CBRE in Birmingham, said: “The surge in grocery store development activity continues unabated, both on the High Street and out-of-town.
“Although the speculative shopping centre and retail park development pipeline declined by just over 7m sq ft between 2007 and 2011, because of the grocery development upturn the total shops pipeline has still grown by more than 8m sq ft.
“Furthermore, the scramble for grocery space looks set to run and run, not least because current economic conditions, combined with a dearth of jobs in more deprived areas, is forcing local authorities to be much more supportive of commercial development activity generally. With speculative development at a recessionary low, grocery development is often the only game left in town and could well remain so for some time.”
Of the 44.4m sq ft of total grocery floorspace in the development pipeline, just over 3.8m sq ft is currently under construction.
In the West Midlands, 320,000 sq ft of grocery floorspace is being built, representing 8.3 per cent of the 4.75m sq ft of space in the pipeline.
Mr Klein said: “Construction activity levels over time, relative to pipeline totals, provide the best medium-term guide to the amount of space making its way through the pipeline.
“The average between 2002-2007 was 8.3 per cent. Since September 2007 the average has fallen to 7.3 per cent. Regardless of economic conditions, this highlights the continuing fierce opposition some local authorities have to grocery development.”
The CBRE report found that where development is taking place, the emphasis is on leasehold rather than freehold, which traditionally dominated the grocery market.
It said the shift is occurring because ‘town centre first’ planning policies are continuing to drive some large unit supermarket development into urban areas, requiring grocers to forge partnerships with developers.
“Whatever the negative productivity impact of locating large grocery stores on town rather than out-of-town sites, leaseholds do provide an opportunity for physical expansion without as much up front cost,” said Mr Klein.
“Supermarket lease-backs are now well trodden ground and are perceived to be one of the most secure property investment vehicles available, which means raising development capital is not a problem. The only real issue for investors is the potential dilution of existing portfolio value through competing supermarket development.
“Thankfully, as the existing distribution of grocery store stock is known and the pipeline is closely tracked, dilution problems can predicted well in advance.”
