20-70% correction in retail properties

According to a report published by Fidelity International, UK retail properties could lose up to 70% in value due to rent cuts.

Fidelity said it anticipates that UK retail real estate values will fall by 20% to 70% depending upon the nature and quality of the assets.

This correction is driven in part by, a 10%-40% reduction in rent to make them sustainable and affordable and by, the change in risk profile of the underlying tenants and their future cash flows de-rating the sector equivalent to 10% to 30%.

Data in the report has revealed that from 2015 to October 2018, the value of unlisted UK retail sectors has fallen by 5%, whereas listed retailers during the period have experienced a 17% drop.

Fidelity said:

"Profitability among bricks-and-mortar retailers in the UK has shown a marked deterioration"

This can be reverted if rental costs fall by 10% to 40%. Of course, this would then lead to the significant de-rating for UK retail real estate by anything from 10% to 30%.

This correction would be the largest in UK retail rents and would lead to major repercussions for landlords.

Fidelity, taking the issue wider and globally, said that countries with, "high retail space per capita, weakening consumer spending growth or a structure change to GDP away from consumer-driven growth are at risk of market repricing; with France and Australia being two markets of particular concern".

According to Fidelity, rent is the only key cost, amongst wages and supply costs, that can be reduced.