Shop vacancy rates in the UK have risen above 10%, partly due to a fall in pop-up shops. Our research found that the proportion of unoccupied retail units rose to 10.1% over the quarter to July, up from 9.6% in April. Small retailers with short-term leases have failed to convert them into longer term agreements.
However, we should not panic or overreact to the vacancy rate increase recorded in July. To some degree it was inevitable given the time of year; while there was an increase in the number of short-term leases over the past year, many will have been leased for a period of a year or less, and Q3 (July to September) is the natural turnaround time for retailers, falling between the start of the summer and peak pre-Christmas trading.
The emergence of the short-term lease has undoubtedly been positive for many locations and for many smaller and independent retailers. It means the barrier to entry has been reduced, delivering a viable way for independents, or even multiples, to test new ways of trading.
Undoubtedly, the natural churn rate will have been exacerbated by the drop in footfall and sales recorded in the first and second quarters (January to June) in the lead up to, and post, the EU referendum.
Vacancy rates are a lagged indicator, following dynamic measures of performance such as footfall and spend – the primary indicators for retailers on which they base their future trading decisions. Once footfall and sales data have been reviewed, there is a time lag during which they notify the landlord of their intentions not to renew their lease before vacating the unit. The relatively poor and volatile footfall trends in 2016 will have proved a little too challenging for some of these pop-up retailers to commit to trade long term, particularly given the much discussed uncertainty around the economy.
On the plus side, the number of unoccupied retail units is also an opportunity for town centres to deliver a more diverse offering and host retail tenants of greater relevance to their markets; where some retailers fail, others can be successful if their offer matches demand.
This is where the independent retailer scores an advantage over their larger multiple counterparts; they can be nimble in the face of changing consumer demand – tweaking and shaping their product lines and store marketing – with a speed that multiple retailers often can’t match due to more complex corporate structures.
The internet has clear advantages for shoppers in terms of its convenience and global reach, so for many town centres the ability to deliver a unique and flexible offer, tailored to the specific needs of their shoppers, will ensure their longevity as successful retail destinations.
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