Market Overview. FIGUre 1: like-for-like retail SAleS - UK V CeNTrAl london. Jan-08. Jul-07. Mar-08. Nov-07. May-07. Mar-07.

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1 autumn 2010 Great Britain retail research & ForeCastinG UK GreAT BrITAIN retail Market Overview GLASGOW EDINBURGH BELFAST LEEDS DUBLIN MANCHESTER BIRMINGHAM UXBRIDGE BRISTOL LONDON CONTeNTS Market Overview 1 Prime In-Town retail s 2 Big is Beautiful? 5 Market Outlook 6 After a relatively bright start to 2010, dark clouds are forming over the UK retail market, leaving only an isolated patch of sunshine over the capital. Figures from the British retail Consortium reveal a slowdown in like-for-like retail sales growth to only 0.5% in July (see Figure 1), with some sectors experiencing negative growth. even online sales, which have performed consistently well over the past year, were disappointing in July at only 11.3% compared to the 12 month weighted average of 16.3%. August s results were slightly better with 1.0% like-for-like growth and non-food non-store sales also picked up, being 17.8% higher than 12 months ago. However, August 2009 was a particularly poor month so it is difficult to draw any meaningful long term conclusions from the latest set of results. In contrast, Central london recorded impressive like-for-like sales growth of 14.4% in June (latest data available) the strongest figure since October Although the World Cup and Wimbledon affected footfall, shoppers were spending more than usual, enticed by the bargains in the clearance sales. Overseas visitors, particularly from the Middle east, China and europe, continued to take advantage of the weak sterling. Whether this level of sales growth can be sustained is another matter as the market remains volatile and hard to predict. After falling for the third consecutive month in July, down to 56, Nationwide s Consumer Confidence Index surprisingly rose by five points to 61 in August but remains significantly below the long run average of 83. This is unlikely to signal a concerted rise in consumer confidence, however, as there are some mounting challenges to face over the coming year. FIGUre 1: like-for-like retail SAleS - UK V CeNTrAl london 20 Percentage Jan-07 Source: British retail Consortium Central London Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 UK Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10

2 There is growing concern about tax rises and job cuts as the new coalition government attempts to reduce the public sector deficit meaning consumers are likely to become more cautious about their spending habits. In fact, Nationwide reports that the number of consumers who believe their household income will be lower in six months time has risen steadily since February and in July reached its highest level since the index began in May 2004, before dropping back in August. This is coupled with the upcoming VAT increase taking effect in January 2011 and a weakening housing market, not to mention the recent warnings that some fashion retailers, such as Primark, H&M and Next, will have to raise prices in the coming year. This is a result of a tightening in global cotton supplies and subsequent soaring prices following the devastating floods in Pakistan. Prime In-Town Retail Rents National Overview: Colliers International has been monitoring prime retail s in 420 locations in Great Britain since 1987 on an annual basis in June of each year. These figures are based on our opinion of Zone A s and reflect the net effective. This is the that would be agreed between the parties for a letting of the premises on the relevant terms and conditions, but without incentives forming part of the transaction. Accordingly, we have adopted figures analysed net of -free periods or capital contributions. We have, however, assumed that the grant of a -free period of three months or less would not be considered to be an incentive. In the cur market, the impact in the majority of cases is that the net effective Zone A rate adopted will be at a lower level than the headline. Over the 12 months to June 2010, the average prime in Great Britain has fallen by 1.4% from 115 psf to 114 psf. Although growth remains in negative territory, this is a marked improvement on last year s catastrophic -11.5% collapse in al values and offers a degree of optimism to retail landlords and investors that 2009 s Armageddon-like conditions are beginning to fade. In fact, compared to the al growth pattern of the economic recession of the early 90s, this is an extraordinary bounce back. The onslaught of the last UK major economic crisis occurred in the latter half of 1990, with the economy officially moving into recession in January As a result, prime retail s fell by 2.4% from June 1990 to June 1991; however, unlike the recent downturn, s declined even further in the following year, by 4.1%, before improving only marginally to -3.3% in the 12 months to June 1993 (see Figure 2). Figure 2: Great Britain Weighted Average Annual Rental Growth, 1989/ /10 Nominal v Real 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 89/90 90/91 91/92 92/ % 93/94 Nominal GB Weighted Average 94/95 95/96 96/97 97/98 98/99 99/00 00/01 Real GB Weighted Average Figure 3: Annual Proportion of Centres with Rising, Static and Falling Prime Rents in Great Britain (June 1987 to June 2010) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 87/88 88/89 Centres with Falling Rents Centres with Static Rents Centres with Rising Rents 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 However, as alluded to previously, the threat of a double dip recession has not completely subsided, with economic commentators warning of at least one quarter of negative GDP growth in the first half of The Chancellor s decision to raise the rate of VAT in January 2011 from 17.5% to 20% in an effort to generate 1 billion a month towards cutting the vast public finances deficit is well intentioned, but there are concerns that the higher rate of VAT will hit jobs, consumer spending and add to inflation, which could trigger a rise in interest rates and slow down the pace of recovery. In fact, as Figure 2 reveals, even now, when taking retail price inflation into account the decline in s over the 12 month period to June 2010 is far greater than our initial analysis revealed at -6.2%. Additional growth in inflation over the next year will further dampen any recovery in al values. However, let us not overlook the improvement that has occurred in the retail market over the past 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 year. Only 23% or 97 of the 420 centres that we monitor experienced a fall in prime in the 12 months to June 2010 this is significantly better than the previous year when a staggering 90% of locations in Great Britain suffered al decline (see Figure 3). In addition, the number of centres seeing an increase in prime rose to 38 (9%) compared to only four (1%) the year before. The remaining 285 locations (68%) succeeded in maintaining prime al levels from June The Best Performers: Of the 38 centres that experienced a rise in prime al levels, Guildford came out top with growth of 16.7%, taking the Zone A up to 280 psf in June 2010 (see Figure 4). This is undoubtedly a consequence of two factors the affluence of the area, which has helped to maintain retail sales, and the lack of supply of prime stock. p. 2 Colliers International

3 Figure 4: Top performing locations in Great Britain (% change in prime, june 2009 to june 2010) Rank Centre Region Rental Growth Guildford South East % 2 Falmouth South West % 3 Glasgow Scotland % 4 Christchurch South West % 5= Sloane Street Central London % 5= Morpeth North East % 5= Newquay South West % 5= Scunthorpe 9= St.Christopher s Place Yorkshire & The Humber % Central London % 9= Acton Outer London % 9= Blackheath Outer London % Figure 5: Worst performing locations in great Britain (% change in prime, june 2009 to june 2010) Rank Centre Region Rental Growth Gillingham South East % 2 Newport Wales % 3 Mansfield East Midlands % 4 Plymouth South West % 5 Gyle Centre Scotland % 6= Halesowen West Midlands % 6= Keighley Yorkshire & The Humber % 6= Loughton East of England % 6= Northfield (Birmingham) West Midlands % 6= Wells South West % 6= Widnes North West % The comparative wealth of Guildford s shopper population has meant that the city has been more resilient to the economic recession. It is likely that although consumers have had less disposable income, they have still had money to spend and may have traded down to cheaper alternatives but have carried on buying regardless. In more deprived locations in Great Britain, however, the level of disposable income is likely to have been relatively low prior to the economic downturn and so the subsequent slowdown in consumer spending may have been more severe. Secondly, there is a shortage of good sized, quality units in Guildford city centre, which has been exacerbated by Westfield s decision to put the 270,000 sq ft extension to the Friary Shopping Centre on hold in the cur climate. Demand from retailers is such that when units do become available landlords can command a healthy, thus pushing up the Zone A. Despite having a much lower prime, Falmouth also performed well over the period, achieving al growth of 12.5%, rising to 45 psf. This can be attributed, in part, to the Rick Stein effect the celebrity chef having recently opened an oyster bar and fish & chip restaurant and takeaway shop in the town, which has undoubtedly raised its profile and boosted the attractiveness of the location, both to tourists and other retailers. Furthermore, there are plans to expand the marina and attract cruise ships and by 2012 the University of Creative Arts will be based fully in Falmouth, with its 3,000 students set to provide another string to the town s bow. Glasgow also increased its prime, moving from 210 psf to 235 psf over the 12 month period to June 2010, equating to growth of 11.9%. This is likely to be the result of an injection of new floorspace at Ivanhoe Cambridge s St Enoch Centre, which has attracted new retailers to the city, including Hamleys whose 30,000 sq ft unit is its only other UK store outside Central London and was seen a major coup that will enhance Glasgow s status as the UK s second shopping city. The first phase of the 100 million, 250,000 sq ft extension opened in November 2009 and phase II was completed in May this year, taking the scheme to over one million sq ft in total. The Worst Performers: Although, on average, prime s in Great Britain have fallen by 1.4%, in many locations the level of al decline has been much more pronounced, though nothing like the dramatic collapse in values seen last year when a number of towns saw s plummet by over 50%. The worst performer in the 12 months to June 2010 was Gillingham in Kent, which saw prime s fall by 25% to 30 psf (see Figure 5). The town has perhaps been a victim of its close proximity to larger competing retail centres such as Bluewater - to and from which there is a regular bus and train service. Colliers International p. 3

4 Local competition may also be the reason behind the 23.1% fall in prime in Newport, which is situated only 12 miles away from Cardiff where Land Securities new St David s 2 scheme opened in October last year adding over 965,000 sq ft to the existing centre. Regional Overview: In fact, as Figure 6 reveals, Wales as a whole has suffered greatly over the 12 months to June 2010 with its average prime falling by 6.1% - the largest level of decline of all the regions in Great Britain. Almost 50% of the centres that we monitor in Wales saw their Zone A decrease over the period, with Haverfordwest and Port Talbot experiencing a +10% fall. Not one Welsh retail location achieved al growth. Likewise, the North West also failed to register an increase in prime in any of its centres and was the third worst performing region at -3.1%, although the larger shopping destinations such as Manchester City Centre and the Trafford Centre succeeded in maintaining their Zone A level from June Flanked by Wales and the North West in the ranking was the West Midlands where prime s fell by 3.2% on average. Stratford-upon-Avon was the only place in the region to achieve al growth, this being 3.7% taking the Zone A up to 140 psf. Figure 6: Change in Average In-Town Prime Rent by Region from June 2009 to June % 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% Central London All London Outer London South East Yorkshire & The Humber North East At the other end of the scale, the ongoing mismatch between the fortunes of the capital and the rest of Great Britain is, once again, evident. Central London s retail market has performed particularly well, achieving prime al growth of 1.1%, followed by Outer London with a rise of 0.3%. This is in stark contrast to the June 2009 figures when all regions in Great Britain suffered from al GB Average East of England East Midlands Scotland South West North West West Midlands Wales decline and, along with the BRC s retail sales data, is a further indication of the strength and resilience of Central London s retailers. Figure 7 reveals the highest ed centres by region and the best and worst performers over the 12 months to June Old Bond Street leads the way in terms of the highest Zone A in Figure 7: Key al statistics by region Region Average Prime Rent June 2010 Highest Prime Rent June 2010 Top Performer June 2009/2010 Worst Performer June 2009/2010 Central London 288 psf Old Bond Street ( 775 psf) Sloane Street (10.0%) Kensington High Street (-6.0%) East Midlands 97 psf Nottingham ( 230 psf) Stamford (7.1%) Mansfield (-21.7%) East of England 96 psf Watford ( 285 psf) Chelmsford (5.7%) Loughton (-16.7%) North East 111 psf MetroCentre ( 325 psf) Morpeth (10.0%) Redcar (-11.1%) North West 98 psf Trafford Centre ( 400 psf) N/A Widnes (-16.7%) Outer London 123 psf B Cross ( 450 psf) Acton/Blackheath (9.1%) Ilford (-13.3%) Scotland 86 psf Glasgow/Braehead ( 235 psf) Glasgow (11.9%) Gyle Centre (-18.9%) South East 105 psf Bluewater ( 400 psf) Guildford (16.7%) Gillingham (-25.0%) South West 100 psf Bath ( 200 psf) Falmouth (12.5%) Plymouth (-20.0%) Wales 77 psf Cardiff ( 250 psf) N/A Newport (-23.1%) West Midlands 117 psf Birmingham ( 285 psf) Stratford-upon-Avon (3.7%) Northfield (Birmingham)/ Halesowen (-16.7%) Yorkshire & The Humber 132 psf Meadowhall ( 400 psf) Scunthorpe (10.0%) Huddersfield (-10.0%) Colliers International p. 4

5 Figure 8: Average Prime Rental Growth by VenueScore Location Grade June June 2010 Percentage Major City/Major Regional Regional/Sub-regional Major District/District Minor District/Local /Javelin Group Figure 9: Average Prime Rental Growth by venuescore location grade June June 2010 Percentage Great Britain at 775 psf, though many of the regions are dominated by the large out-of-town shopping centres which still retain their appeal to both retailers and shoppers and thus landlords are able to command a healthy. Kensington High Street was the worst performer of all the Central London locations that we monitor with a al fall of 6%. This is likely to be the result of the ongoing impact of the nearby 1.6 million sq ft Westfield London scheme, which is taking market share from Kensington and reducing its attractiveness as a shopping location. All Locations Average = -15.8% *excludes all Central London locations Major City/Major Regional Regional/Sub-regional Major District/District Minor District/Local /Javelin Group All Locations Average = -1.7% *excludes all Central London locations Big is Beautiful? There has been much commentary in the media about the negative effect that the large regional schemes and major city centres have had on smaller retail locations, with the general belief being that the larger locations are growing at the expense of smaller ones, which are gradually becoming ghost towns as the larger centres capture a steadily growing share of the retail market. In order to investigate this further, we have analysed the al performance of the locations monitored in the Colliers International retail s database (excluding Central London) by Javelin s VenueScore location grade. We have grouped the location grades into four categories Major City/Major Regional; Regional/Sub-regional; Major District/District; Minor District/Local. Figure 8 shows the average percentage change in prime from the pre-recession top of the market in June 2008 to June The data reveals that the Major City/Major Regional centres have, as suspected, performed the best (or least worst!) over the two year period, falling by 10.4%. There was only a marginal difference in al growth performance amongst the middle and lower VenueScore grades at between -15% and -17% over the two years from June June Since the onset of the economic downturn, some retailers have looked to downsize their portfolios and no longer see the justification for representation in all high streets and shopping centres in the country. Instead, they have changed their strategy abandoning smaller towns and concentrating on the prime city centre and major regional shopping centre locations, coupled with a transactional website and nationwide delivery network. In simple terms, retailer demand for shops in secondary retail locations has waned and landlords are struggling to find tenants causing al levels to decline. The medium and small locations are unable to offer either the high volume trading potential for retailers, nor the huge flagship stores and wide range of goods, as well as the shopping and leisure experience for consumers and are thus losing market share to the nearby goliath retail magnets, such as the Bluewaters and Manchester City Centres of this world. After the severity of the economic recession, which led to an influx of retailer administrations, a dramatic rise in vacancy rates and significant al decline across the location grades, the 12 month period from June 2009 was characterised by a calmer and more optimistic market which translated into a slight improvement in al movement albeit that the fall in Zone A was less than the previous year, rather than a return to the days of al growth. Figure 9 shows that in the 12 months from June 2009 it has, surprisingly, been the Minor District/Local category which has outperformed the others with a al fall of only 0.3%, compared to the 1.5%-2% drop experienced by the other location grades. This may be partially attributable to the change in consumer behaviour that began to emerge as the recession deepened, whereby the preference for top up shopping and buying only what they need, when they need it diverted shopping back to local areas as people looked to reduce lengthy car travel and the associated petrol and parking costs. This trend was particularly beneficial to convenience and service retailers. Colliers International p. 5

6 Central Great Britain london retail SPRING AUTUMN RESEARCH & FORECASTING Market Outlook Over the next 12 months, the retail landscape will continue to be an undulating and barely navigable terrain as consumers bear the brunt of tax rises, public sector job cuts (which may have a disproportionately worse effect on the northern regions) and falling house prices, which we forecast will decrease by a further 5-10% in The continued weak labour market will ensure that wage growth will be fairly limited, less than inflation, meaning real disposable income will be squeezed. The predicted slowdown in consumer spending will dampen sales and hit retailer s margins, which will do little to aid the already suffering secondary locations. Speculation is growing that the Government may be forced into a second tranche of quantitative easing in order to prevent the occurrence of a double dip recession. In the short term, the prospects for the Christmas period look promising as we expect many consumers to bring forward purchases, particularly big ticket items, before the VAT increase in the New Year. However, this is likely to have a devastating effect on January s retail sales, with a sharp drop in sales growth forecast for the opening couple of months of Central london will continue to outperform, however, both in terms of retail sales, al growth and vacancy rates, with plans for the city to overtake New York and become the world s leading fashion retail destination by 2012 by securing an additional 21 international flagship stores in the West end. Furthermore, the New West end Company aims to increase annual shopper spend by 66% to 10 billion by 2020 and has plans to create a new district called the luxury Quarter, encompassing the upmarket streets of Bond Street, Mount Street, Jermyn Street and Savile row the former of which will undergo a makeover that will include street fashion shows. The recent signing of Spanish fashion retailer, desigual for the 6,360 sq ft former disney Store unit at 360 Oxford Street at a record breaking 710 psf Zone A demonstrates the continued appetite for prime space in the capital, having beaten off stiff competition from Mango, Aldo and O2. The marked polarisation in the retail market is set to continue with strong demand for good quality prime stock in the major towns, city centres and major regional shopping centres. There is potential for positive al inflation in these locations due to a lack of new space coming to market. In contrast, the worst locations with poorer secondary stock are likely to suffer from a continued fall in retailer demand, a high number of vacant units and further falls in net effective al levels. That is not to say, however, that all small/ medium retail locations are destined to become ghost towns. Indeed it is not so much an issue of big versus small, but rather a case of prime stock versus secondary stock as even the large retail locations are suffering from void units in the secondary pitch. Some smaller towns have indeed been experiencing long term decline that has simply been exacerbated by the economic recession, but many others are in a less fragile state and with the commitment and co-operation of the local authority and landlords have the potential to reinvent themselves and become successful shopping destinations once more. 480 offices in 61 countries on 6 continents United States: 135 Canada: 39 latin America: 17 Asia Pacific: 26 ANZ: 168 emea: 95 london - West end 9 Marylebone lane london W1U 1Hl research & ForeCastinG dr richard doidge director of research Consultancy richard.doidge@colliers.com Sarah Banfield Associate director sarah.banfield@colliers.com retail agency Paul Moody director paul.moody@colliers.com retail agency scotland John duffy director john.duffy@colliers.com disclaimer: This report gives information based primarily on published data which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to the forecasts, figures or conclusions contained in it and they must not be relied on for investment purposes. This report does not constitute and must not be treated as investment advice or an offer to buy or sell property. September Colliers International is the licensed trading name of Colliers International UK plc. Company registered in england & Wales no registered office: 9 Marylebone lane, london W1U 1Hl. Accelerating success.