It is time for investors to retreat from risky retail

The Lakeside shopping centre in Essex – the UK’s first true American style mall – opened to much fanfare by Princess Alexandra in 1990. Since then, malls have been a feature of the British retail scene and have also been a key component of real estate funds, writes Parul Scampion, co-founder of propio.com, an online investment management platform focused on property debt and development However, falling footfall on the high street and the rise of the Amazon has destroyed performance in recent years. This has now started to feed through to the financial side of shopping centres, with investment volumes in UK centres down 9% in the first quarter of 2018 year-on-year, according to Savills. Share-price to NAV ratios for firms like intu are a telling story of how markets see values declining further. Javelin, a consultancy, predicts that online retail will result in a 25% reduction in store numbers by 2020. The end of shopping centres? It is common knowledge that most traditional UK property funds have a fairly hefty exposure to retail and shopping malls, but one thing that may have passed many retail investors by is the fact that large chunks of the cash invested by such funds do not actually go into property at all. A quarter of managed funds can sit as cash, equities and bonds – rather than in bricks and mortar – in part, to avoid a repeat of the run on the property sector in the aftermath of the 2016 Brexit vote. This further erodes returns. So, rather than investing in property funds and being unsure of where your money is actually going, now could be the time when individual investors – whose main route into property has been funds or shares – could look to gain direct exposure to physical assets through alternative investment platforms. Editor’s comment: Saving high streets is easier said than done Our new online property investment platform, Propio, offers returns of up to 20% by providing a menu of options ranging from equity stakes in development (the most risky) to asset-backed loans. Other lending and finance platforms have sprung up in recent years, but we have sought out FCA regulation and ensure that any loans we write are backed by a physical asset, unlike many crowdfunding platforms lending to SMEs. These investments aren’t without risk, but standing still in retail could be riskier still. As EG revealed, British Land, Britain’s largest property company, has already started reducing its retail exposure across the board. In its 2017/18 results issued last month the group said it was “proactively” reshaping its retail portfolio due to the “challenging” market conditions in the sector and had made £419m of retail disposals in the year to the end of March 2018. That a such a major player is disposing of retail is pretty telling. This is borne out by the fact that the total space lost on the UK’s high streets so far in 2018 is roughly 11m sq ft, according to Radius Data Exchange  – more than was lost during the whole of 2016 following the collapse of BHS. With more than 11.2% of high street retail units now vacant, according to Local Data company statistics, most experts agree that now is the time to give the retail sector a wide berth. With the crisis on the high street worsening, commercial property funds – which are heavily exposed to shopping centres – are likely to be hit again. For example, M&G’s Property Portfolio Sterling A returned 6.3% during 2017 but lost 7.6% the year before, according to Morningstar, so generating a solid, consistent return is far from guaranteed. It is clear that no one wants to see our high streets continue to suffer and for more iconic names to go the same way as BHS or Woolworths, but from an investment point of view, the safe bet could be to shop elsewhere for property returns.