Retail slowdown hits construction

By Paul Burnell
BBC File On 4

The credit crunch has hit the high street

The UK love affair with shopping has proved to be a key factor in the economic prosperity and urban regeneration of the last decade.

But the global economic downturn, along with a shift towards shopping online, has seen a High Street slowdown that is having a knock-on effect for the flagship shopping centres that in the past have often been centrepieces of urban regeneration.

"There's far more capacity out there than ever before and demand is relatively flat," says retail sector analyst Richard Hyman of Deloitte, a consultancy, warning that retail-led urban regeneration may be over for good.

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"These times are very difficult," Mr Hyman says.

"If you look at what is going on, the cost of money is significantly higher and confidence is significantly lower because we are all being told that the value of the largest asset we have in this country - our homes - is nothing like we thought it was.

"Everything we buy to consume is costing more, petrol is significantly more than it was in the recent past, something's got to give."

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For retailers, the best way out of this mess is the restructuring route, according to Professor Barry Gilbertson, a member of a Bank of England committee that advises its governor about the property market and partner, PricewaterhouseCoopers.

Some contractors are stepping back and not tendering because they have such difficulty predicting where raw material costs will go Richard Wise, chief executive, Centros

Last year, Professor Gilbertson urged eight major retailers with some 2,000 stores between them quit and then sell or let out more than a quarter of their property portfolios.

"That is something in the order of 550 shops coming onto the market," he says.

Since then, a study has found that about 1,000 stores have come on the market as a result of some 20 major retailers either going bust or restructuring.

"It's a very worrying trend," says Professor Gilbertson

Flat demand

The weakness in the retail sector has had an impact on the construction sector, which is also struggling to cope with soaring metals and energy costs, according to Richard Wise, chief executive of developers Centros.

No developer is going to deny in general that retailing in 2009-2010 is going to get very difficult Richard Wise, chief executive, Centros

"You've got the main metals, especially steel, aluminium and glass, increasing at such a rate that some contractors are stepping back and not tendering because they have such difficulty predicting where raw material costs will go in those long lead-in projects," he says.

"They can tender and predict costs for an office building, which may be a fairly immediate thing.

"But when you are talking about very large town or city centre regeneration projects, which may have three, four or five year lead-in periods, trying to tender is mighty hard."

The number of town and city schemes that may have to be delayed or shelved across the UK was now into "double figures", according to Mr Wise.

And yet, he insists, there are still business opportunities for the shrewdest.

"No developer is going to deny in general that retailing in 2009-2010 is going to get very difficult," he acknowledges.

"But you have pockets of demand and part of the skill of being a successful developer is to try and find those towns and cities where there genuinely is unsatisfied retail demand."