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CB RICHARD ELLIS

MarketView Retail Market Monthly www.cbre.eu/research

September 2009

OVERVIEW One of the anomalies of the current recession is the relative performance of retail sales. The pattern of retail sales during the early 90s’ recession suggest that households cut back on discretionary expenditure and maintained non-discretionary expenditure. This time around the pattern is not as clear cut; non-food stores, and the clothing and footwear sector in particular, have shown strong annual growth. What are the possible reasons for this? Many retailers acted swiftly this time around and, aware that the consumer was becoming ever more price conscious, discounted heavily throughout the early months of the year. Many clothing and footwear stores have been able to continue ‘discounting’ due to falling retail prices compared to rising food prices. As a result the value of sales - total money through the tills - has fallen yearon-year whereas the volume (the measure that removes the impact of price changes over time) has remained in positive territory. The opposite is the case for food-stores where total money through the tills has risen but the volume of sales has fallen (see graphs below). This trend has been somewhat reversed in the latest month’s figures although whether this indicates a sea change in consumer spending habits is still unclear.

KEY RETAIL INDICATORS

RETAIL SALES (Office for National Statistics)

House prices rose for the fourth consecutive month in August, according to Nationwide, increasing by 1.6%. The year-on-year decline slowed from -6.2% in July to -2.7%. House purchase transactions continued to increase from record low levels seen in late 2008.

Monthly Figures The volume of retail sales rose by 2.1% year-on-year in August. The annual rise was driven by the performance of food-stores; the highest in this sector since January 2005. Non-food stores rose only slightly by 0.2%. Looking at the subsectors; household goods stores remain in negative territory although the last 2 months have seen reduced falls. Clothing and footwear stores rose, but at a lower level than in recent months.

UK interest rates - the Bank of England held interest rates for the sixth consecutive month at the historic low of 0.5%. They also confirmed that they would continue with the £175bn asset purchase programme.

3 Month Rolling Average

The GFK Consumer Confidence Index remained at the same level for the third month in a row although respondents confidence in the general economic outlook improved.

Retail sales (by the volume measure) rose by 2.7% in the 3 months to August compared with the same period a year earlier. The 3-month measure smoothes out some of the monthly variation within the sales figures. Within the subsectors food stores rose by 2.9%; the highest rise since March 2005. Non-food stores rose by 1.7%.

Annual Inflation (RPI) which includes housing costs rose slightly to -1.3% in August from -1.4% the previous month. CPI, in contrast, fell to 1.6% from 1.8%. Clothing and Footwear Store Sales (ONS) – 3 Month Rolling Average % Change Y-on-Y Volume

Food Store Sales (ONS) – 3 Month Rolling Average % Change Y-on-Y Volume - food stores

Value

Value food stores

11.0 9.0 7.0

7.0

5.0 %

11.0

3.0

3.0 1.0

-1.0

NOTE: Sales Value – the total turnover that businesses have collected over a standard period. Sales Volume – value estimates adjusted to remove the impact of time

2009 Mar

2007 Jul

2005 Nov

2004 Mar

2002 Jul

2000 Nov

1999 Mar

1997 Jul

1995 Nov

1994 Mar

1992 Jul

1990 Nov

2009 Mar

2007 Jul

2005 Nov

2004 Mar

2002 Jul

2000 Nov

1999 Mar

1997 Jul

1995 Nov

-5.0 1994 Mar

-9.0 1992 Jul

-3.0 1990 Nov

-5.0

1989 Mar

-1.0

1989 Mar

%

15.0

price changes over

©2009, CB Richard Ellis, Inc.


RETAIL PROPERTY MARKET TRENDS

MarketView Retail Market Monthly

Quick Stats

Investor Demand

Monthly Indicators Retail Sales (ONS)

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House Prices (Nationwide)

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Interest Rates (Bank of England)

Cons. Confid. (GFK NOP)

Inflation RPI (ONS)

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CBRE Three Monthly Outlook Retail Sales

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House Prices

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Interest Rates

Cons. Confid.

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Inflation RPI

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Retail Monthly Indicators Rental Value Growth

CB RICHARD ELLIS

The divergence in investor sentiment between prime/good secondary and secondary stock continues. The problems that the market has faced in terms of increasing voids, tenant administrations and falling rental values have been exacerbated in the secondary market. The lack of available prime stock will limit growth, particularly in the Shopping Centre market, for the foreseeable future Occupier Demand A number of the strong fashion, discounter and food retailers continue to perform well through the current downturn, borne out by the recent trading figures from Next, Wilkinsons and Waitrose. The pattern of take-up of the Woolworths portfolio has provided evidence to support the current frugal spending habits of the UK shopper with discounters accounting for 37% of the take-up to date. Rental Growth (IPD) • All Retail rental values fell for the 12th consecutive month in August, by 0.4%. Year-to-date rental growth is now -5.3%. • Standard Shops rental values fell by 0.5% in August. Year-to-date growth is now -5.2% • Central London rental values rose by 0.4% in August. Year-to-date growth is now -5.5% • Retail Warehouses rental values fell by 0.4% in August. Year-to-date growth is now -5.1% • Shopping Centres rental values fell by 0.3%. Year-to-date growth is now -5.5%

-0.4 %

Income Return

0.7%

Capital Value Growth

0.4%

Total Return

1.0%

Source: IPD Monthly Index

Capital Appreciation (IPD) • Capital values rose for the second consecutive month in August following 2 years of falls. Year-to-date Capital Growth now stands at -13.6%. Across the sub-sectors Shopping Centres recorded capital value falls of -0.4%, High Street Shops rose marginally by 0.1% and Retail Warehouses rose by 0.8%. CBRE Prime Yields (CBRE)

Rental Value Growth (performance over 12 months) All Retail

-6.1%

Shops

-5.6 %

Central London Shops

-6.2%

Shopping Centres

-6.6 %

Retail Warehouses

-6.0%

Source: IPD Monthly Index, CBRE

• Yields for all prime asset classes remained unchanged in September. Whilst the outlook for prime Shops and Shopping Centres remains stable, Retail Warehouses are trending stronger. • High Street Shops – prime yields remained unchanged at 6.00% in September • Shopping Centres – prime yields remained unchanged at 7.00% in September. • Retail Warehouses - prime yields, for the open user class, remained unchanged at 6.50% in September. Total Returns (IPD) • The All Retail total return rose by 1.0% in August. The year-to-date total return now stands at -9.0%.

For more information regarding the MarketView, please contact: David Williams Executive Director Retail – Client Strategy CB Richard Ellis Kingsley House Wimpole Street London W1G 0PQ t: +44 20 7182 2837 e: david.williams@cbre.com

James Gulliford Senior Director Retail – Capital Markets CB Richard Ellis Kingsley House Wimpole Street London W1G 0PQ t: +44 20 7182 2216 e: james.gulliford@cbre.com

Tom McDonough Associate Director Retail Research CB Richard Ellis St Martin’s Court 10 Paternoster Row London EC4M 7HP t: +44 20 7182 3326 e: tom.mcdonough@cbre.com

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Disclaimer 2009 CB Richard Ellis Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis. © Copyright 2009 CB Richard Ellis ©2009, CB Richard Ellis, Inc.


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